A mere week after Rachel Reeves told the Commons she had restored her fiscal headroom, Trump’s planned ‘Liberation Day’ tariff deluge could send a wrecking ball through the Chancellor’s buffer.
Wall Street giant Goldman Sachs has downgraded Britain’s economic growth outlook ahead of the President launching a fresh set of tariffs that could smash Reeves’ “iron clad” rules.
The bank cut its growth forecasts for the British economy from 0.9pc to 0.8pc this year and from 1.3pc to 1.2pc for 2026.
Goldman said it expects “a larger total hit to UK GDP from trade tensions,” even if Downing Street is able to secure a deal.
The Chancellor said she had restored her £9.9bn headroom during the Spring Statement last Wednesday.
Following the speech, the Office for Budget Responsibility said: “We assess the probability of meeting the target, with that amount of headroom, is basically around 50 per cent.”
OBR committee member Tom Josephs said in a press conference on Wednesday: “It would not take much to eliminate that headroom again.”
“A 0.6 per cent increase in gilt and interest rates, 0.1 per cent lower productivity and the worst case tariff scenario could eliminate the headroom,” he added.
Following Goldman’s downgrade the Chancellor could be on course to watch her narrow headroom crumble.
Additionally, the economists anticipated any deal reached between the UK and US would not shield the British economy from the “greater spillovers” from larger expected US tariffs on the EU.
“There remains considerable uncertainty around whether the US will impose further tariffs on the UK,” the authors added.
Trump has indicated he believes a deal with the UK “can be worked out” and that there is a “very good chance” of an agreement where “tariffs wouldn’t be necessary” but thus far, nothing has been set in stone.
On the cusp of Trump’s new tariff onslaught, ministers have remained hopeful of a deal.
Business and Trade Secretary Jonathan Reynolds said the UK has “more of an opportunity to reach an agreement” because of its small trade surplus with the US.
