UK Economy Sees Short Term Lift Amid Trump Tariff Turmoil

Britain’s economy has received an unexpected boost in the early months of 2025 following US President Trump’s sweeping tariffs imposed on nearly every international trading partner. The EY Item Club has revised its GDP growth projection for the UK to 1 per cent this year, up from the earlier estimate of 0.8 per cent, attributing this modest uplift to a burst of corporate spending as firms rushed to complete deals and shipments prior to the implementation of the US tariffs in April.

The move by the United States has introduced a wave of uncertainty, with many forecasters warning that while short-term gains have materialised, the longer-term consequences for the British economy are less optimistic. Matt Swannell, chief economic adviser to the EY Item Club, noted that although activity increased in the first quarter, the overall improvement remains limited. The rest of 2025 is predicted to be marked by sluggish momentum, with ongoing trade wars, geopolitical tensions, and the spectre of further tax increases dampening economic prospects.

Looking forward, the EY Item Club expects UK economic growth to slow to 0.9 per cent in 2026 before reaching a more stable 1.5 per cent cruising speed in 2027. Swannell warned of continued headwinds, including persistent uncertainty affecting major investment decisions, tighter government fiscal policy, and the lingering impacts of previous interest rate rises, particularly for households facing higher mortgage repayments.

The challenging economic environment is mirrored in the labour market. Unemployment is projected to reach 5 per cent by the end of this year, rising from the current 4.7 per cent. While companies are easing back on hiring, large-scale redundancies remain off the table for now. Job market data from Adzuna reveals 875,546 vacancies—a 2.7 per cent rise year on year and the strongest annual increase since July 2022—though these numbers remain below pre-pandemic levels. Employer demand is uneven, and elevated labour costs, driven by increases in the national minimum wage and employer national insurance contributions, continue to weigh on recruitment.

Inflation pressures persist in the background, fuelled by both rising business costs and increased household energy bills. The EY Item Club now expects inflation to average 3.4 per cent in 2025—higher than their previous forecast of 3 per cent in the spring. This stubborn inflation is anticipated to prompt the Bank of England to lower interest rates on three occasions—August, November, and February—potentially bringing the base rate down to 3.5 per cent. Swannell notes that a gradually softening labour market and slowing wage growth should offer reassurances that domestic inflation will ease, but only at a measured pace.

Global economic turbulence, including ongoing trade disputes and instability in major markets, means UK businesses and consumers are likely to remain cautious in the months ahead. The balance of risks remains on the downside, with weak growth and inflationary pressures shaping the outlook as the country moves through the remainder of 2025 and into 2026.