A global trade war sparked by Donald Trump’s tariffs could wipe out Rachel Reeves’ spare cash within days, experts have warned.
The chancellor announced in the Spring Statement that the Office for Budget Responsibility estimates she will have £9.9 billion of “fiscal headroom” come 2029.
However, the OBR also warned that could vanish if Trump goes ahead with his threat to impose a 20% tariff on imports from April 2.
In their assessment of the chancellor’s plans, the OBR said in the most “severe” scenario, in which the UK and other nations retaliated against America, the UK’s gross domestic product (GDP) would be 0.6% lower than forecast this year and 1% lower next year.
“This would almost entirely eliminate the headroom ... as additional tariff revenue is more than offset by lower receipts from income, corporation and consumption taxes,” the OBR said.
Talks between the UK and US on avoiding tariffs remain ongoing, with trade secretary Jonathan Reynolds visiting Washington last week to discuss a possible “economic deal” with America.
Asked about the tariff threat, Reeves told the Commons: “We believe in free trade. We are a small, open trading economy and we benefit with trade links around the world, including with our single biggest trading partner the United States of America.
“And it is right that we work with our allies in the United States to ensure that that free and open trade continues, that is in our national interest and this government will always act in our national interest.”
The Liberal Democrats’ Treasury spokesperson Daisy Cooper later claimed the chancellor was “flying blind” into a trade war with the White House.
She said: “Donald Trump is wreaking havoc on the world economy with his destructive tariffs. The chancellor said she would seek economic stability, but there is no economic stability to be found in relying on the whims of this chaotic White House.
“Trump’s tariffs risk leaving the chancellor’s plans in tatters, wiping out what little growth was left after forecasts were slashed. But this government is flying blind instead of coming up with a proper plan on how to protect our economy from this threat.
“Simply sitting back and hoping is not a strategy. It is time for the government to start talks on a new trade deal with the EU that provides stability for businesses, boosts growth and allows us to deal with Trump from a position of strength.”