UK Economy Set for Modest Growth Despite Trump Tariff Concerns

The British economy is projected to grow by 1.5% in 2025, according to the latest forecast from the National Institute of Economic and Social Research (NIESR). This upward revision from the previous estimate of 1.2% comes as welcome news for Chancellor Rachel Reeves, though significant headwinds loom on the horizon.

Donald Trump’s aggressive trade policies, particularly the implementation of a 25% tariff on steel and aluminium imports, pose a substantial threat to this growth trajectory. The impact could potentially reduce economic expansion to 1.3% or lower, especially if additional tariffs materialise. British steelmakers are already bracing for the impact of these measures, set to take effect from 12 March.

A recent British Chambers of Commerce survey reveals concerning statistics, with 63% of UK manufacturers exporting to the US anticipating negative effects from the tariffs. The broader business community shows anxiety, as 34% of all UK firms expect some form of impact on their operations.

The Bank of England’s monetary policy outlook suggests a more conservative approach than market expectations. NIESR predicts only one interest rate cut in 2025, bringing rates to 4.25%, contrary to City investors’ expectations of two cuts. This cautious stance reflects concerns about inflationary pressures from both increased government spending and potential tariff-related costs.

Despite these challenges, the UK economy shows some resilience. Per capita economic growth is expected to rise by 1%, supported by wage increases that should boost real disposable incomes by 1.9%. The government’s planned £70 billion economic injection through the autumn budget could provide additional support to growth prospects.

The global economic landscape remains uncertain, with NIESR forecasting worldwide growth to hold steady at 3.2% in 2025 before slightly declining to 3.1% in 2026. These projections underscore the delicate balance facing policymakers as they navigate between supporting growth and managing inflationary pressures in an increasingly complex international trade environment.