Trump's Tariffs Set to Shock UK Economy, Halving Growth and Raising Inflation, Warns NIESR

Following Donald Trump’s victory in the US presidential election, the National Institute of Economic and Social Research (NIESR) has warned of severe economic repercussions for the UK. With President Trump back in office and aiming to fulfil campaign promises on protectionist trade policies, NIESR suggests that growth in the UK could be halved, while inflation and interest rates could sharply rise.

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In its latest quarterly report, NIESR predicts a dramatic slowdown in UK economic growth if the US implements new tariffs on imports, as Trump has pledged. The think tank warns that the UK economy could experience growth of just 0.4% next year, as tariffs disrupt global trade and trigger an economic slowdown across major markets. The prospect of a trade war looms large, with ramifications that could extend well beyond the immediate relationship between the UK and the US, likely damaging the world economy as a whole.

Ahmet Kaya, an economist at NIESR, cautioned that US tariffs could drive UK inflation three to four points higher, which would necessitate a corresponding increase in interest rates—by up to two to three percentage points. This situation would not only affect consumer spending power, due to higher costs for goods, but also squeeze households and businesses as borrowing becomes more expensive.

NIESR’s projections indicate that even without the direct impact of new tariffs, the UK economy is in for a challenging period. Growth is forecast at a subdued 1.2% next year, rising only slightly to 1.4% by 2026 and reaching 1.7% by 2030. These modest figures point to underlying weaknesses that could be exacerbated by aggressive trade policies from the newly re-elected Trump administration.

Kaya highlighted that tariffs are often a “lose-lose” policy, with detrimental impacts across both domestic and international markets. "Trump’s proposed tariffs would be yet another shock to the UK economy," he said. "Higher prices for the goods people buy will mean less money for other spending, and rising interest rates will add additional financial pressure on households and businesses." As Trump’s economic policies start to take shape, the UK is bracing itself for the significant knock-on effects.