The UK economy is expected to remain largely unaffected by potential trade tariffs imposed by the incoming U.S. administration under President-elect Donald Trump, according to a Reuters poll of economists. A significant majority of those surveyed anticipate minimal impact from any tariffs.
This optimistic outlook contrasts with concerns about potential negative effects on the European Union, which the UK officially departed in 2020. Economists attribute this confidence, in part, to the composition of UK trade with the US. While the US accounts for a fifth of total UK trade, only a third of British exports consist of goods, the primary target of the proposed tariffs.
Interestingly, despite both countries reporting trade surpluses with each other due to differing statistical methodologies, Trump’s focus remains on rectifying US trade deficits. The UK faces the complex challenge of navigating its relationship with both the US and the EU, its largest trading partner, seeking to strengthen ties with the new US administration while mending relations with Brussels.
James Rossiter of TD Securities suggests the UK’s independent position outside the EU allows for greater flexibility in negotiating a settlement with the Trump administration. He also notes the relatively balanced trade in goods between the two countries might result in lower tariffs.
Over 80% of the economists polled (19 of 23) predict tariffs on UK imports to be below 10% or even zero, despite previous discussions of broader tariffs ranging from 10-20% on all countries and higher rates for China, Canada, and Mexico. Only four economists anticipate tariffs within the 10-20% range.
Furthermore, a similar proportion of economists (20 of 25) believe the impact on the British economy will be insignificant, offering positive news for Prime Minister Keir Starmer’s government and its growth agenda.
Rabobank’s Stefan Koopman suggests the UK’s economic structure is relatively well-suited to withstand potential repercussions from trade tariffs. While acknowledging the unavoidable impact of a trade war on an open economy like the UK, Koopman believes the effect will be less severe than on countries heavily reliant on manufacturing and goods exports, such as Germany.
However, Bank of England Monetary Policy Committee member Megan Greene cautions that it’s premature to definitively assess the impact of tariffs on the UK or other economies, highlighting the uncertainty surrounding the specific nature of these tariffs and their potential influence on inflation.
The poll also addressed UK interest rates. All 71 economists surveyed from December 6-11 anticipate the Bank of England will maintain the Bank Rate at 4.75% on December 19th. Median forecasts indicate quarterly reductions of 25 basis points throughout the next year, resulting in a Bank Rate of 3.75% by the end of 2025. Approximately 54% of economists who provided forecasts through the end of 2025 (36 of 67) expect a total reduction of 100 basis points by that time.
