Global trade tensions sparked by US President Donald Trump’s tariffs have hurt UK business sentiment and will slow economic growth, according to a Reuters poll of economists who stuck to expectations for one Bank of England interest rate cut per quarter.
US tariffs have negatively impacted business sentiment in the UK, according to all 25 respondents in an April 16-23 poll who answered an additional question, including one who said very negative.
The survey was conducted after Trump announced a 90-day pause on his much larger than expected tariffs on major trading partners around the world except for China, which he has ramped up levies on. The UK was hit by the lowest tariff, at 10 per cent.
More than 40 per cent of common contributors who participated in the April and March polls, 20 of 45, cut their growth forecasts, with the median at 0.9 per cent versus 1.0 per cent, down for a fourth straight month.
More than two-thirds reduced their UK growth forecast for next year, now a median 1.2 per cent versus 1.4 per cent in March.
“We expect tariff-induced shocks to business investment will echo that of Brexit,” said Gabriella Willis, UK economist at Santander CIB, referring to Britain’s recent exit from the European Union.
“Many businesses were already in wait-and-see mode ahead of the April rise in the NICs (National Insurance Contributions) employer payroll cost, but the advent of tariffs and the uncertainty they bring will cement this caution.”
British private-sector activity weakened by the most in more than two years in April, a separate business survey showed.
The International Monetary Fund recently downgraded its 2025 UK growth forecast to 1.1 per cent from 1.6 per cent in January, matching their overall downgrade for advanced economies.
“At the moment we have a very modest (US tariff) impact on UK GDP,” said Sanjay Raja, chief UK economist at Deutsche Bank. “We are expecting to see the indirect effects of trade shocks coming through via lower business investment.”
For now, economists appear sanguine about inflation.
Poll medians showed a peak at 3.3 per cent next quarter, lower than the BoE’s 3.7 per cent forecast made in February for the same period.
Inflation was expected to average 3.1 per cent in 2025 and 2.3 per cent in 2026, largely unchanged from the March survey.
Moreover, BoE Monetary Policy Committee member Megan Greene said the risk from tariffs was “disinflationary” rather than inflationary, allowing a “cautious” approach to rate cuts.
The broadly cautious outlook for UK rates has not changed since last month and has been roughly steady since September.
The BoE, which has cut Bank Rate (GBBOEI=ECI) by 75 basis points to 4.50 per cent since kicking off its easing cycle in August, is expected to cut 25 bps each quarter, ending the year at 3.75 per cent.
Interest rate futures are pricing in around 100 bps more in reductions this year.