Donald Trump's latest US tariffs could plunge UK economy into crisis next week (2025)

The US President announced a 25% import tariff on all cars coming into the US - and is also set to announce a potential tariff on UK exports of up to 20% by next week

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The UK could plunge into an economical crisis in a matter of days due to the threat of US tariffs, the financial watchdog warned. Rachel Reeves delivered her Spring Statement yesterday, announcing major cuts totalling around £14 billion.

But the Office for Budget Responsibility (OBR) said that the chancellor may be forced to make further cuts as the threat of 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.

While 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 Ms Reeves's budget headroom.

In this scenario, the chancellor would be forced to find almost £18billion in further savings or tax rises, reports The Times. Paul Johnson, director of the Institute for Fiscal Studies think tank, said: "If you are going to have 'iron-clad' fiscal rules then leaving yourself next to no headroom against them leaves you at the mercy of events."

While the Resolution Foundation think tank said that just a 0.2% in GDP would result in a £6.2billion 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.

Ms Reeves confirmed during her Spring Statement that 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 said her planned reforms will create a "permanent" increase to GDP. The chancellor added: "People will be on average £500 a year better off under this Labour government."

Ms Reeves also revealed that the OBR predicted real household disposable income would grow faster than it had expected last October. She said: "People will be on average £500 a year better off under this Labour government."

However, some Labour MPs spoke out against the budget. Kim Johnson, Labour MP for Liverpool Riverside, condemned the budget and says she will vote against legislation which tries to enact changes.

In a statement published to X, she wrote: "This assault on disabled people and those in need of support is nothing short of sadistically cruel. To pursue policies indistinguishable from the cruelty of Tory austerity is not cost-cutting; it is a false economy that will devastate many."