The United Kingdom, meanwhile, is bracing for an economic hurricane. The current trade war between the United States and just about all of its major trading partners is heating up. British exporters will experience increased charges on goods sold into the US market, with a 10% tariff already imposed following the US’s recent announcement. The US has suspended the imposition of higher tariffs on imports from most countries for 90 days. The UK’s ongoing economic recovery remains vulnerable to the growing trade disputes.
The effects of the trade war go far beyond tariffs. The Bank of England has indicated that British households are currently well-positioned to weather the impending economic storm. This makes the UK’s debt burden as a share of income at its lowest level since 2001. This reality reinforces the economic optimism that we discussed in our 2023 positive surprise watch. The bigger issue is that the trade war will make it more difficult for the UK economy to get onto a sustainable growth path.
Chancellor Rachel Reeves has voiced her concerns, stating that the UK economy will likely face a downturn due to the trade war, despite being on a level playing field with other nations concerning the 10% tariff. Tariffs imposed by the US, and by other nations in retaliation, will hit UK businesses hard, because global supply chains mean the effects are complicated and deep. This tit-for-tat trade dispute will affect them, in very serious ways.
The recent turbulence in international stock markets did not help allay perceived fears, especially among UK investors. The boom-and-bust cycles have made it very difficult to invest with any degree of confidence, adding to the economic uncertainty. As different industries prepare for their share of damage, no sector’s more worried than advertising. Advertising services spending tends to be the first to go under the knife as budgets are cut. This trend could be right again this time.
The demand for those goods could be impacted even more, as tariffs slapped on one country by the US cause waves through global markets. Rerouting of low-cost goods from poor countries might ease the cost of living crisis in the UK. Unfortunately, this relief doesn’t amount to much for businesses that are starting to struggle under the pressure of climbing costs.
As the situation progresses, experts highlight that the UK’s banking system is well-equipped to absorb potential shocks arising from this trade war. The Bank of England could be forced to slash interest rates up to four times this year. Industry applauded today’s move will offer significant relief for consumers and small businesses alike. But these equally important policy changes could do little, on their own, to offset the detrimental impact of tariffs and other trade restrictions.