Growth in the UK's economy is set to be slower than previously predicted as a result of the trade disruption and uncertainty caused by US trade tariffs, an economic forecaster has said. The EY Item Club has downgraded its UK growth forecast for this year to 0.8% from 1.0%, and cut it to 0.9% from 1.6% for 2026. The recently imposed tariffs on the UK and other countries are expected to dampen business and consumer confidence as well as reduce demand for goods and services. The tariffs include a 10% baseline tax on imports from the UK as well as a 25% tax on all aluminium, steel and cars. Business investment is predicted to be weaker as many firms become more cautious amid "high levels of uncertainty" in global trade. "Businesses thrive on certainty, so it's unsurprising that an unpredictable global market is translating into lower levels of business investment over the short term," said Anna Anthony, EY UK & Ireland regional managing partner. Last week, the International Monetary Fund (IMF) cut its growth forecasts for many major economies, including the UK. It now expects the UK to grow by 1.1% this year, down from its previous prediction of 1.6%. EY said the US tariffs on the UK and other countries are expected to create a significant obstacle for UK exports. The US is a key market for UK services and also takes in about 16% of the UK's exported goods. Even if tariffs against the UK are not extended, EY said any further trade tensions could have an indirect impact on UK growth by damaging the global economy. "US tariffs will act as a drag on UK growth and we're likely to see a slowdown in economic activity from the second quarter of this year through to early next year," said Matt Swannell, chief economic adviser to the EY Item Club. UK exports are predicted to fall by around 0.5% in 2025 and 0.4% in 2026. Despite predicting lower business investment, EY said there were "still some grounds for optimism". The service sector is still expected to grow this year, and predicted cuts to interest rates should help to boost household and business spending. EY expects the Bank of England to have cut rates to 3.75% by the end of this year, and then reduce them to 3.5% in February 2026. EY predicts inflation will rise above 3% in April and remain there for most of the rest of the year, but then expects it to fall to 2.4% in 2026.
UK growth forecast cut over tariff uncertainty
TruthLens AI Suggested Headline:
"EY Item Club Lowers UK Growth Forecast Amid US Tariff Concerns"
Bbc News
8.0
TruthLens AI Summary
The UK's economic growth forecast has been revised downward due to the ongoing trade disruption and uncertainty stemming from newly imposed US tariffs, according to the EY Item Club. The forecast for 2023 has been adjusted from 1.0% to 0.8%, while the projections for 2026 have been slashed from 1.6% to 0.9%. The tariffs, which include a 10% baseline tax on UK imports and a 25% tax on aluminium, steel, and cars, are expected to adversely affect both business and consumer confidence, leading to a decrease in demand for goods and services. As businesses grapple with these uncertainties, investment is anticipated to weaken significantly. Anna Anthony, the EY UK & Ireland regional managing partner, emphasized that businesses thrive on certainty, and the unpredictable nature of the global market is naturally resulting in lower levels of investment in the short term.
In addition to EY's adjustments, the International Monetary Fund (IMF) has also lowered its growth forecasts for major economies, including the UK, now expecting a growth rate of 1.1% for 2023, down from 1.6%. The tariffs are identified as a considerable barrier for UK exports, particularly as the US is a crucial market for UK services, accounting for approximately 16% of the country's exported goods. Even if the tariffs are not extended, any further escalation in trade tensions could indirectly harm UK growth by destabilizing the global economy. Matt Swannell, chief economic adviser to the EY Item Club, noted that the US tariffs will likely hinder UK growth, predicting a slowdown in economic activity from the second quarter of this year through early next year. UK exports are forecasted to decrease by around 0.5% in 2025 and 0.4% in 2026. However, there remains a glimmer of hope as the service sector is still expected to grow, and anticipated cuts to interest rates may stimulate household and business spending, with EY forecasting a reduction to 3.75% by the end of 2023 and further down to 3.5% by February 2026. Despite inflation expected to rise above 3% in April, it is projected to decrease to 2.4% by 2026.
TruthLens AI Analysis
The article provides insight into the UK's economic outlook, highlighting a downgrade in growth forecasts due to trade uncertainties, particularly stemming from US tariffs. This information reflects broader concerns about economic stability and the implications for both businesses and consumers in the UK.
Implications of Tariff Uncertainty
The article emphasizes how the newly imposed tariffs by the US on UK imports can lead to reduced business and consumer confidence. This uncertainty is likely to result in lower demand for goods and services, with specific tariffs on aluminium, steel, and cars being particularly impactful. The downgrading of growth forecasts by the EY Item Club signals potential stagnation in economic activity, which could resonate through various sectors.
Perception of Economic Stability
By highlighting the forecast cuts from both the EY Item Club and the IMF, the article aims to create a perception of economic fragility. The statement from Anna Anthony regarding businesses thriving on certainty illustrates the anxiety surrounding investment levels. The message conveyed is that a volatile global market may hinder economic progress, potentially instilling a sense of urgency among policymakers and businesses.
Potential Omissions and Underlying Issues
While the article discusses the negative impacts of tariffs, it may downplay other contributing factors to economic performance, such as domestic policies or global economic conditions unrelated to trade. This could lead to a simplified understanding of the situation, potentially diverting attention from other critical issues affecting the UK economy.
Connection to Broader Economic Trends
The article fits into a larger narrative concerning global trade dynamics and their ramifications for national economies. It aligns with ongoing discussions about trade relations and economic forecasts across various countries, particularly in the context of rising protectionism. This connection to broader economic trends may amplify the urgency of the message regarding the UK's economic outlook.
Impact on Investment and Market Sentiment
The downgrade in growth forecasts is likely to create cautious behavior among investors and businesses. This may lead to a reduction in stock prices related to UK exports and industries heavily reliant on trade with the US. Companies within the sectors affected by tariffs, such as manufacturing and automotive, may face direct repercussions as investor confidence wanes.
Relevance to Global Power Dynamics
This news piece reflects ongoing tensions in international trade relations, particularly between the US and its allies. The tariffs and their implications for the UK’s economy could influence discussions about trade agreements and the balance of power in global economics, especially as economies seek to navigate the post-pandemic landscape.
Artificial Intelligence Influence
It is possible that AI tools were utilized in crafting the article, particularly in data analysis and summarization of economic forecasts. However, the overall narrative is consistent with journalistic standards. AI involvement may have shaped how the information was presented, potentially streamlining the communication of complex economic data.
In conclusion, while the article presents important information regarding the UK's economic outlook amidst tariff uncertainties, it is essential to consider the broader context and other influencing factors. The report appears reliable based on its sourcing and the economic forecasting entities involved, though it may simplify the complexities of the situation.