US tariffs set to damage UK economy, Reeves tells cabinet ministers
Donald Trump’s tariffs are expected to “have an impact” on the UK’s economy, Chancellor Rachel Reeves has told cabinet ministers, after business secretary Jonathan Reynolds warned the country faces “a very serious and significant moment”.
The US President is set to unveil sweeping – but as yet unknown – tariffs on goods from around the world on Wednesday, an event he has dubbed ‘liberation day’, just days after the official watchdog warned the Chancellor’s precarious fiscal headroom could be wiped out by the move.
It is unclear what exactly Trump will announce, but it’s believed his administration is critical of the application of the VAT rate, and could respond with a 20 per cent tariff on UK imports.
Prime Minister Sir Keir Starmer has admitted the UK is unlikely to avoid being hit by import taxes on goods going into the US, despite the two countries so-called ‘special relationship’, warning the “likelihood is there will be tariffs” and that “nobody welcomes that”.
The UK is continuing efforts to secure a trade deal with the US to ameliorate the impact of tariffs, amid reports – denied by business secretary Jonathan Reynolds – that an agreement is ready to sign.
Starmer updated cabinet ministers at their weekly meeting this morning on the government’s “latest position” on the “announced US plans on steel, aluminium and automotive tariffs, with further details of ‘reciprocal’ global tariffs expected this week”, an official readout stated.
UK headroom
While Reeves, who spoke to her US counterpart, Treasury secretary Scott Bessent yesterday, said that “global tariffs will have an impact on the UK as an open trading economy” and that “securing a deal could mitigate some of those effects”.
Addressing the Treasury select committee this morning, Professor David Miles, from the independent Office for Budget Responsibility (OBR), said if 20-25 per cent tariffs were imposed on the UK, it could “knock out all the headroom that the government currently has”.
The Prime Minister also said “the UK’s approach is to progress ongoing talks with the US on an economic deal, which are at an advanced stage, while keeping all options on the table” and he stressed that “a calm and pragmatic approach best served UK national interests”.
He added that: “Nobody wants to see global tariffs, but the UK would continue negotiations, continue engaging with British industries, prepare for all scenarios, and double down on delivering a modern industrial strategy that supports jobs and grows the economy.”
While business secretary Jonathan Reynolds said “the UK was well placed to agree an economic deal with the US” and “talks would continue beyond tomorrow’s announcement”.
Reynolds added that the “business community wants to see the government take a calm, cool-headed, and pragmatic approach to discussions with the US”.
‘Prepare for the worst’
Speaking in the House of Commons this afternoon, foreign secretary David Lammy warned the UK must “prepare for the worst” as “intense conversations” continue on a possible deal.
Lammy told MPs: “It’s hugely important at this time that we continue the intense conversations we’re having with the US administration on getting an economic agreement but of course we prepare for the worst – all options remain on the table.
“But it’s also right that the business secretary and I and others across Government continue to engage with business and industry so we can give them the best support at what will be a turbulent economic time, not just for our own country but of course much of the world.”
Former British ambassador to the US, Lord Kim Darroch, has told Times Radio the UK should be “careful” and “not a pushover” in its dealings with the US administration.
He warned that Trump “already thinks tariffs are a great idea” and added “if he starts getting concessions offered by the rest of the world, to keep them away, he’ll keep using them.
“And every time there is some grievance or some dispute in relations, he’ll come back and threaten tariffs or impose them and then say, do what I want you to do to get them lifted.”
He added: “There is still, it seems from what the government is saying, a glimmer of hope that a deal can be done somewhere down the line.
“But meanwhile, we’re going to take the hit of the tariffs that will be announced tomorrow… it could be a very big hit indeed. And it looks like it’s going to be global.
“I think, as has just been said, it will damage the American economy as much as it damages the rest of the world. So it’s a thoroughly destructive and self harming move. But it’s coming.”