Trump tariffs latest: UK economy to suffer even if new US trade deal struck

Our political correspondent Archie Mitchell writes:

Kemi Badenoch has gathered journalists in the ground floor of Tory HQ in a room that feels more like a classroom than a venue for a major political party’s conference.

The Independent has been shunted into a faraway corner because the room is not big enough to seat the relatively modest audience that has shown up to hear from the Conservative leader while giving everyone a decent view.

The party’s lack of funds has long been a talking point in Tory circles, with swathes of head office staff being made redundant to shore up the party’s finances.

And today’s presser is a sign of how badly the party is struggling. Not only could they not rent out a suitable venue to host journalists, they could not get a usually friendly think tank or donor to put them up in a more appropriate spot.

It seems Britain is not alone in being caught off guard over Donald Trump’s upcoming tariffs, after their hopes of reaching an economic agreement with the US to avert import taxes on UK goods were reportedly dashed over the weekend.

Speaking to reporters at the White House on Monday, the US president declared that he had “settled” on his so-called “Liberation Day” plans, adding: “Relatively speaking, we’re going to be very kind.”

That is claimed to have come as news to White House aides, however, who were under the impression that Mr Trump had not yet committed to a set strategy and that conversations remained fluid, sources told the Wall Street Journal.

It’s worth a note over a few big fallers in the UK over the past couple of days – as they’re not all due to potential incoming tariffs.

Pets at Home fell more than 12 per cent yesterday after a profit warning, before rebounding somewhat in the afternoon.

Builder merchant Travis Perkins is down more than seven per cent today after reporting falling revenue and a £77m pre-tax loss. They are also looking for a new CEO, after the health-related departure of Pete Redfern.

And John Wood Group shares fell by almost a third yesterday after reporting issues with their accounts – they expect their shares to be suspended from trading in due course due to a delayed filing.

The US State Department has made a rare intervention in British politics, warning of its “concerns about freedom of expression in the United Kingdom”.

It said she faces criminal charges for offering conversation with patients seeking abortions within a legally prohibited “buffer zone” outside a clinic. “We are monitoring her case. It is important that the UK respect and protect freedom of expression,” the State Department’s dedicated democracy, human rights and labour (DRL) account posted.

It added: “US-UK relations share a mutual respect for human rights and fundamental freedoms. However, as Vice President Vance has said, we are concerned about freedom of expression in the United Kingdom.”

Our political correspondent Archie Mitchell reports:

Sir Keir Starmer has said that talks with the US on a trade deal which would help Britain avoid being hit by Donald Trump’s import tariffs are “well advanced”.

“We are discussing economic deals,” Sir Keir told Sky News. “These would normally take months or years, and in a matter of weeks, we’ve got well advanced in those discussions.”

Looking ahead to the US market opening in a few hours, while most of the major names sunk yesterday in early trading, there was a significant rebound later in the day.

The S&P 500 closed about 0.5 per cent higher in the end, and several tech names are seeing share price rises in pre-trading.

There’s still time to change here, but Tesla is poised to open 3.5 per cent up, Nvidia 1.1 per cent up, Alphabet 0.7 per cent up, Microsoft and Amazon are flat.

Opportunistic buying at lower prices, or is optimism over a lower tariff impact slowly coming back?

“Sensitive areas” such as food standards will be a “red line” in UK economic talks with the US, but axing plans for a digital services tax on US tech firms could be on the table, the business secretary has suggested.

Speaking to Times Radio, after the newspaper reported that UK minsters have already conceded that they will drop plans for a digital services tax in their talks with US counterparts, Jonathan Reynolds said: “There are sensitive areas you can’t go to.

“Other countries understand that the regime that we put in place in the UK, what we call our SPS [Sanitary and Phytosanitary] regime, which is our food standards regime, that’s a red line for us. That’s a really important area that we wouldn’t be able to negotiate on and the US understands that position as do other countries.”

While a “digital services tax” – whereby global tech firms “pay a rate of tax in the UK that is commensurate to their economic activity” in Britain – is “an important principle”, Mr Reyndods said, he added: “But how we achieve that – we’ve always wanted to reach that on an international basis.

“Digital services tax in itself was a temporary imposition in lieu of a wider international agreement. So how we deliver upon that is something we can talk to any country in the world.”

The Times reported on Monday night that UK ministers were particularly frustrated to learn that Britain would be hit by US tariffs this week because they believed an economic deal – including concessions on a digital services tax and agriculture, but none on food hygiene standards – was ready to go.

It’s not just the FTSE which was down yesterday; the S&P 500 is down more than 5 per cent in the last month and the Nasdaq sits on -8.2 per cent across the same time frame.

All that selling doesn’t mean money just sits in bank accounts though; traders and investors typically want to trade or invest, not maintain full liquid – or cash – positions.

So, they look for alternative assets. Crude oil is up about 2.5 per cent for the past month, but the real winner has been gold. The price of gold futures – which tracks the price of perceived safe-haven bullion – has risen to above $3,150, with new all-time highs being set every day at the moment.

Gold is up more than 21 per cent since the start of 2025. Analysts foresee a continuation along that path to around $3,300 by the end of the year.

Goldman Sachs economists have downgraded their expectations of UK growth as Britain braces to be hit by Donald Trump’s trade tariffs.

Even if ministers secure the economic agreement they are seeking with the US, Goldman Sachs analysts said they still expect the UK’s GDP to suffer a greater hit than previously anticipated due to “larger negative spillovers” from trade tariffs levied against the European Union.

As a result, the bank now expects 0.8 per cent of UK growth this year and 1.2 per cent in 2026 – down from 0.9 and 1.3 respectively.

The bank’s chief European economist Sven Jari Stehn was quoted as saying by The Telegraph: “Even if the direct hit to GDP from lower exports to the US is modest, the overall drag on UK growth from trade fragmentation is likely to be greater.

“The larger US tariffs on other economies included in our new baseline imply a larger growth hit in the US and the Euro area, which should result in larger negative spillovers to the UK.”

The below chart tracks UK quarterly growth since late 2022, according to the Office for National Statistics:

The European Union will be ready to retaliate against US trade tariffs with strong countermeasures if needed, European Commission President Ursula von der Leyen said on Tuesday.

“Our objective is a negotiated solution. But of course, if need be, we will protect our interests, our people, and our companies,” Ms von der Leyen said in a speech in the European Parliament in Strasbourg.

“We do not necessarily want to retaliate. But if it is necessary, we have a strong plan to retaliate and we will use it.”