In 2024, the UK exported approximately £58bn worth of goods to the US, making this a significant blow for UK businesses.
Economists have warned that these tariffs could throw the UK's economy off course, complicating efforts for the government to meet its self-imposed borrowing rules. The added pressure of higher borrowing costs could slow economic growth and force the government to cut public spending or raise taxes to stay within its borrowing limits.
UK prime minister Keir Starmer said the government was moving "to the next stage of our plan" after negotiations with the US failed to fend off any tariffs.
He promised any decisions "will be guided only by our national interest, in the interests of our economy, in the interests of businesses around this table, in the interests of putting money in the pockets of working people".
"But I want to be crystal clear: we are prepared, indeed one of the great strengths of this nation is our ability to keep a cool head."
What are tariffs?
Tariffs are effectively taxes placed on imports. They can raise revenue for the government or force people in a country to buy local goods by making foreign products more expensive.
Most tariffs are set as a percentage of the value of the goods in question; generally, the importer pays the tariff. Exporters often have to cut their prices to remain competitive.
So, what could these tariffs mean for the UK?
Will tariffs push up consumer prices in the UK?
The short answer is: yes, they could. The global impact of tariffs will seep into supply chains and in some form hit the UK too.
Businesses importing goods into the US will feel the direct impact of the tariffs. However, higher prices in the UK may also trigger wage demands, raising business costs.
Ahmet Ihsan Kaya, principal economist at the National Institute of Economic and Social Research, told the BBC that these cost increases could spill over into UK inflation, which exceeded the Bank of England's 2% target, reaching 2.8% in February.
If the UK government retaliates with its tariffs on US goods, it could further increase prices, putting additional strain on UK households. Economic growth has been sluggish, with a slight contraction of 0.1% in January.
Sarah Coles, personal finance columnist at Yahoo Finance UK and head of personal finance at Hargreaves Lansdown, said: One potential impact of the tariffs is that the value of the dollar could rise against the pound, making anything we import more expensive. This includes everything from food to the components for manufacturing.
"However, in the short term, this could be offset to some extent by countries sending goods to the UK instead of the US, which could temporarily bring some prices down. As with everything else associated with these tariffs, there’s huge uncertainty, and we will need to keep a close eye on developments in the coming weeks.”
Staff members assemble Range Rover Evoque SUVs on the production line at Jaguar Land Rover’s Halewood factory in Liverpool. The carmaker stands to be particularly affected, as 100% of its cars sold in the US are manufactured abroad. ·REUTERS / Reuters
Interest rates – will mortgages become costlier?
If inflation increases, the Bank of England may be forced to hold its base rate again at its next interest rate meeting. Instability in global financial markets may also make it less likely that the Bank will cut the base rate when it meets on 8 May.
Jason Hollands, managing director at wealth management firm Evelyn Partners, said that central banks, including the US Federal Reserve, European Central Bank (ECB), and Bank of England, may choose to cut rates if inflationary pressures prove to be short-term or one-off.
However, higher tariffs could lead to inflationary pressure, resulting in rate hikes.
“Ultimately, the impact on savings and mortgages will depend on how central banks choose to balance inflation control with economic support,” Hollands said.
Coles urges homeowners to look for a deal as early as possible to lock in a better remortgage rate. She said: “Modelling the impact of so many unknowns is always tricky. There’s a risk that inflation is imported from the US and around the world, which would mean the Bank of England keeps interest rates higher for longer, which would mean more expensive mortgages.
"However, right now, the market doesn’t think this will be the Bank’s biggest worry. It’s assuming that all these tariffs hit global trade, putting the Bank of England under pressure to cut rates to support growth, so it’s pricing in more cuts.
"The uncertainty means that if you have a remortgage looming, it’s well worth shopping around for a deal as early as possible. If rates rise between now and when you need to remortgage, you’ll have locked in a cheaper deal, and if they fall, you can track down something more competitive."
As global economic uncertainty rises, City investors are increasing their expectations for interest rate cuts by major central banks. The chances of a rate cut by the European Central Bank have now reached 92%, up from 80% earlier in the week. The probability of a Bank of England rate cut in May has also increased to 77%.
However, higher inflation driven by tariffs could force central banks to keep interest rates higher for longer.
Myron Jobson, a senior personal finance analyst at Interactive Investor, explained the implications for Britons: “If tariffs contribute to higher inflation, central banks may be forced to tighten monetary policy, which can weigh on bonds and borrowing costs. This could impact everything from mortgage rates to corporate investment, potentially slowing economic growth."
Will there be job losses?
Yes, but the impact is likely to be less severe than in Europe as the UK makes fewer things.
However, with auto sector hit hardest with a blanket 25% tariff there are likely be job losses despite the Midlands no longer being the hub of car manufacturing that it once was.
The UK car industry was already bracing for the 25% tariff on vehicles sent to the US, which was announced last month, but Wednesday’s tariff announcement has heightened concern.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), described the announcement as “deeply disappointing and potentially damaging”.
The Institute for Public Policy Research (IPPR) warned that the tariffs could lead to the loss of an estimated 25,000 UK jobs in the car manufacturing sector.
British carmaker Jaguar Land Rover (TATAMOTORS.BO) stands to be particularly affected, as 100% of its cars sold in the US are manufactured abroad. The US is the top global destination for its Range Rover and Defender models.
In 2023, the US was the UK's largest export partner for cars, ahead of Germany and the Netherlands.
In 2023, the US was the largest export market for UK cars, accounting for 16.9% of total car exports, worth £7.6bn. To avoid tariffs, manufacturers may need to shift production to the US, further complicating an already fragile industry.
Russ Mould, investment director at AJ Bell, said the tariffs come at "a very difficult time for the industry" as UK car production dropped 12% in February compared to the year before.
He explained: "Consumer confidence is on edge, we know it's a highly competitive market, and even electric vehicles aren't perhaps quite selling as quickly as hoped.”
The UK exports nearly £58bn worth of goods to the US annually, with key sectors including machinery, cars, pharmaceuticals, fishing, and electronics. If demand for UK goods falls due to the higher import charges, businesses may face shrinking profit margins, leading to potential job losses unless they can find new markets outside the US.
Will tariffs hit your personal wealth?
The tariff bombshell has set off a series of ripple effects across the UK economy. While personal wealth may face pressures in the short term, the key advice for UK investors is do not panic.
Hollands reassured that economic shocks, including tariff-related volatility, tend to affect equity or bond markets in the short term but generally lead to recovery over the medium to long term.
“It’s natural to want to sell or move to ‘safer’ assets when market turbulence hits, but that’s often not the best move,” Hollands said. “A diversified portfolio, one that includes gold, value stocks, and government bonds, will likely fare better than a portfolio heavily focused on growth stocks during uncertain times.”
For those with defined benefit pensions, Hollands noted that these should largely be unaffected since payouts are fixed. However, movements in interest rates may affect transfer values, with higher rates typically leading to lower sums for transfers.
“Defined contribution pension holders, especially those with years to go before retirement, don’t need to panic,” he added. “While the value of their pension pots might dip, they have time to recover. Regular contributions could even work to their advantage if they are buying equities at lower prices.”
Coles also underscored the importance of having a diversified portfolios, She said: "Time in the market and diversification have consistently been the foundations of successful investing strategies. For investors owning quality companies over the long term, big bumps in the road are part of the journey.
"The strategy of drip-feeding investments by gradually allocating funds can also help mitigate risks and can pay off in uncertain times. It means investors may be able to take advantage of lower prices and benefit during a recovery, to help smooth out sharp market movements over the longer-term.”
Steel and aluminium
The imposition of Trump’s 25% tariffs on steel and aluminium imports, including those from the UK, had already been in place before this new round of tariffs.
Industry bodies like UK Steel have expressed concerns about the long-term impact on UK consumers and the broader economy. Make UK, representing British manufacturers, described the tariffs as "devastating," particularly noting the disappointment that the UK's special relationship with the US had not led to expanded free trade.
The UK’s steel industry is already struggling with excess global production, particularly from China, which has driven down prices. The US is the steel industry’s second-largest export market, behind the EU, and a further tariff increase could hurt both producers and consumers in the UK.
Impact on exports
The Scotch whiskey industry exports nearly £1bn worth of spirits to the US annually. ·NurPhoto via Getty Images
Whiskey
The Scotch whiskey industry, which exports nearly £1bn worth of spirits to the US annually, is also reeling from the announcement of a 10% tariff on British imports. The Scotch Whisky Association expressed disappointment at the new tariffs but acknowledged the UK government's ongoing efforts to secure a deal with the US administration.
This isn’t the first time Trump has targeted Scotch whiskey. In 2019, a 25% tariff was imposed, causing a £600m drop in exports. With the US being the largest market for Scotch whiskey, these new tariffs could lead to further financial losses for the sector.
Chris Beckett, head of equity research at Quilter Cheviot:, said: "Scotch whisky got off lightly with just a 10% tariff being added, though we saw the impact previous taxes had on the industry back in Trump’s first presidency. The UK government will hope to appeal to Trump’s Scottish roots to get a carve out, but the likelihood seems low.
“Likewise, someone like Diageo (DGE.L) will try to get exemptions for the likes of Guinness and other drinks where provenance matters. America, for instance, cannot make Champagne or Cognac, but for now it appears Trump does not care about this and is simply concerned with consumers buying American.
"As such, we expect the likes of Pernod Ricard (RI.PA) and LVMH (MC.PA) to also suffer and potentially be left with a glut of products that could end up having a deflationary effect in other markets."
Salmon
The UK’s salmon industry is similarly concerned, heavily relying on the US market for sales. Tavish Scott, CEO of Salmon Scotland, expressed confidence that American consumers would continue to demand Scottish salmon despite the tariff.
The US remains the second-largest customer for UK salmon, buying £225m worth in 2024. Industry bodies are relieved that the tariffs were set at 10% rather than the 20% initially feared.
Pharmaceuticals
With firms like AstraZeneca (AZN.L) and GSK (GSK.L), the UK pharmaceutical sector is deeply integrated into trade with the US. The US accounts for 40% of AstraZeneca’s sales and 50% of GSK’s.
Tariffs could impact the flow of raw ingredients and finished products across borders, potentially leading to delays and higher costs. Additionally, issues could arise when tariffs clash with price caps imposed by the NHS and other health organisations for bulk drug purchases.
The sector appears to have been granted a temporary reprieve. The White House factsheet said pharmaceuticals would be exempt from reciprocal tariffs on global imports.
Sheena Berry, healthcare analyst at Quilter Cheviot, said: “For now, pharmaceutical products are exempt from reciprocal tariffs, recognising the importance of the medicines. It will likely remain in focus and create a bit of an overhang on companies though.
"Large pharmaceutical companies have a global footprint with most companies generating 40%-60% of sales in the US. Whilst a number will manufacture a significant portion of drugs in the US for the US, the companies have subsidiaries outside the US which hold the intellectual property and/or manufacture drug products. This is a factor in determining the effective tax rates for these companies."
However, Trump is looking into launching a so-called 232 investigation into pharmaceuticals and other sectors, including semiconductors and potentially critical minerals, according to a senior administration official, Bloomberg reported. That action could lead to tariffs under the Trade Expansion Act, as it already has for cars and aluminium.
Barret Kupelian, chief economist at PwC, said: “The UK avoided a direct blow — but the global economy has taken a substantial hit. For the UK, the impact is significant — though less severe than for some other countries.
“In the short term, businesses face a sharp rise in uncertainty.”
