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The UK government is bracing for US tariffs set to be outlined this week by President Donald Trump to hit the British economy, even as the two governments continue talks on a potential carve-out.

Bloomberg News

Alex Wickham

Published Apr 01, 2025  •  4 minute read

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(Bloomberg) — The UK government is bracing for US tariffs set to be outlined this week by President Donald Trump to hit the British economy, even as the two governments continue talks on a potential carve-out.

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Chancellor of the Exchequer Rachel Reeves told the cabinet on Tuesday that “the tariffs would have an impact on the UK, which has an open trading economy,” Prime Minister Keir Starmer’s spokesman, Dave Pares, told reporters, while declining to elaborate on those effects. 

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Reeves told colleagues that securing an economic deal will provide some mitigation and that she had spoken to US Treasury Secretary Scott Bessent about the looming tariffs on Monday. However, that conversation, and a phone call between Trump and Starmer on Sunday, did not appear to have secured any immediate exemptions for the UK from the so-called reciprocal tariffs that the US is expected to announce on Wednesday. 

The expected US tariffs pose a threat to Britain’s already fragile economy. Bloomberg Economics estimates that Britain faces a 1.1% drop hit to gross domestic product if it is subjected to a tariff increase of 25 percentage points, cutting exports to the US by 70%. In a worst-case scenario that sees Britain end up with a 35 percentage-point rise in US tariffs, trade drops by 80%, putting 1.3% of GDP at risk.

Starmer told Tuesday’s Cabinet meeting that the UK would take a “calm, pragmatic approach” and not make a “knee-jerk reaction” to whatever Trump announced, Pares said, indicating that Britain would not immediately retaliate. While talks are at an “advanced stage” for an economic deal with the US, “all options are on the table,” the spokesman said. 

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Pares declined to put a time-frame on how long those negotiations could take. A British official familiar with the matter said they could run on for weeks after the levies are imposed.

“Tomorrow is not a deadline: If they take action tomorrow, that is not a reason to walk away from the potential to secure an agreement,” Trade Secretary Jonathan Reynolds told BBC radio on Tuesday. “This is a time for calm heads, this is a time for pursuing again our own national interests, to do what British companies, British businesses need us to do, which is to engage and find a way through this.”

Britain’s exposure to US tariffs is lower than that of the European Union, which faces a 1.5% GDP hit in a plausible scenario, and a 2% blow in a worst-case scenario, according to analysis by Jamie Rush and Antonio Barroso at Bloomberg Economics.

Richard Hughes, chair of the Office for Budget Responsibility, warned last week that if Trump imposed blanket tariffs on the rest of the world it would reduce Britain’s economic output by 1% and see the £9.9 billion ($12.8 billion) of headroom Reeves has against her budgetary rules evaporate, paving the way for tax rises at the autumn budget.

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Reynolds earlier told broadcasters that he was optimistic Britain could eventually agree a technology-focused deal with the US which could see new tariffs lifted. 

“If any country is able to reach an agreement with the US, I don’t believe there’s a country better placed than the UK,” he told Times Radio. He confirmed Britain was talking to the US about changes to its digital services tax, which Bloomberg reported the UK was considering as a potential sweetener in order to strike a deal with Trump. “The delivery, the structure of that is something we can talk about,” he said. 

The minister also told BBC the UK would “ensure we’re not on the receiving end of dumping,” suggesting he was ready to impose tariffs and quotas on certain products to protect British firms, and had done so already for steel and aluminum. 

The looming pressure on Britain’s economy comes at a delicate time. Earlier on Tuesday, Starmer insisted that a boost to minimum wage rates at the start of April will help Britons with the cost of living even as a slew of household bills rise this month.

A 6.7% increase in the national living wage comes into effect this week, handing eligible full-time workers £1,400 ($1,810) more per year. It “means we’re already giving hard working people more money in their pockets and a proper wage increase worth over twice the rate of inflation,” Deputy Prime Minister Angela Rayner in an emailed statement. 

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Nevertheless, the increase only provides some consolation for Britons who face a £600 rise in their annual households bills starting this month, according to calculations by Bloomberg. Typical water bills are due to rise 26% this financial year, while a price cap on energy bills increases by 6% on Tuesday. Most local authorities in England are planning to raise council tax by 5%. 

The hikes threaten to deliver a further blow to the struggling UK economy by driving up inflation and leaving consumers with less disposable income. That risks reversing some early signs of green shoots which have suggested Britain may be emerging from stagnation. Moreover, employers face a double hit, with the wage rise coming in addition to an increase in National Insurance contributions on April 6 to 15% from 13.8%, representing a £26 billion tax rise.

The higher bills and coming tax rise for business have led tabloid newspapers in Britain to brand the month “Awful April,” heaping pressure on Starmer and Chancellor of the Exchequer Rachel Reeves, who is already facing dissent within the governing Labour Party over cuts to welfare and departmental spending.

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