The UK could find itself in an economical crisis in a matter of days due to the uncertainty surrounding US tariffs, the financial watchdog warned.
Rachel Reeves announced £14 billion worth of cuts in her Spring Statement two days ago which has already left the country reeling.
However, the Office for Budget Responsibility said that the chancellor may be forced to make further cuts as the threat of Donald Trump’s proposed tariffs on the UK loom.
The US president announced on Wednesday a 25% import tariff on all cars.
He added that the measure will come into effect on April 2 and charges on businesses importing vehicles will start the following day.
Taxes on car parts are set to begin in May or later. The OBR also warned against the threat of US tariffs on UK exports of up to 20%, which are expected to be announced this Tuesday on on what Trump called “liberation day”.
This could wipe of 0.6% off GDP (gross domestic product) growth by 2026, increasing to 1% if the Government retaliated with their own tariffs.
Yet even if the UK managed to sidestep the US tariffs as part of a trade deal, the economy would still be hit in the short term by 0.2% due to global trade war repercussions, the OBR said.
Just a 0.6% rise in Bank of England rates would obliterate Reeves’s budget headroom.
If this was to happen, the chancellor would be forced to find almost £18 billion in further savings or tax rises, according to The Times.
The Resolution Foundation think tank said that just a 0.2% in GDP would result in a £6.2 billion hit to the economy.
The overall tax burden in the UK is forecast to rise from the equivalent of 35.3% of GDP in 2024/25, to a ‘historic high’ of 37.7% in 2027/28, according to the OBR.
Reeves confirmed there would be no tax changes but this meant balancing the books in other ways.
She also announced a reduced uplift in day-to-day government spending and, with the world ‘changing before our eyes,’ announced increases to defence and security spending.
She claimed the reforms would create a ‘permanent’ increase to GDP and added: “People will be on average £500 a year better off under this Labour government.”
However, some of Labour’s own MPs have criticised the budget.
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