Trump tariffs could push UK into recession
Britain could be pushed into a full-scale recession if Donald Trump follows through on his latest explosive trade threats, economists have warned.
Analysts say the UK economy stands to suffer a brutal £21.6 billion hit should the US President impose punitive tariffs on British exports.
Capital Economics forecasts that the country’s GDP could contract by up to 0.75% if the new charges are introduced swiftly.
The turmoil was triggered by Trump’s shock ultimatum demanding the purchase of Greenland — a move that has sent global markets reeling.
The President has threatened the UK and seven other European nations with an additional 10% import tax from February 1, escalating to a crippling 25% by June if no agreement is reached.
Paul Dales from Capital Economics warned that the already-fragile UK economy may not withstand the blow.
“With the economy currently expanding by just 0.2–0.3% per quarter, a shock of this magnitude could tip Britain into recession,” he said.
Prime Minister Sir Keir Starmer is now navigating a diplomatic minefield as tensions rise.
Despite the pressure, he insisted Britain would not retaliate with tariffs of its own, calling the United States a “close ally.”
His measured tone contrasts sharply with anger in France, where officials denounced the move as blackmail and floated retaliatory countermeasures.
Markets have already been rattled.
The FTSE 100 dropped more than 120 points after opening on Tuesday, falling 1.3% to 10,068.4 following losses the previous day. Mainland European indices also traded sharply lower, with Germany’s Dax down 1% and France’s Cac 40 off 0.9%, after heavy overnight declines in Asia.
Gold, a traditional safe-haven asset, surged to another record high, reaching $4,728 (£3,507) per ounce on Tuesday morning.
As he travelled to Davos for the World Economic Forum, Trump ramped up his rhetoric over the Arctic territory.
Kathleen Brooks, research director at XTB, said: “The next move for the financial markets will ultimately depend on President Trump’s actions in the coming days.”
Trump posted an image of himself holding a US flag on Greenland, hinting the territory would be “owned by the US this year.”
He also announced a “Greenland meeting” at Davos following talks with NATO’s secretary-general and former Dutch PM Mark Rutte, insisting there is “no going back” on his pledge.
“Therefore, this week’s meeting in Davos will be critical,” Brooks added.
Bond markets also reflected the mounting stress. UK gilt yields ticked higher amid a broader sell-off, with Japanese government bonds plunging after a snap election was unexpectedly called for February 8.
Sterling strengthened 0.4% to $1.348 against a weak dollar but slipped 0.3% to €1.15 versus the euro.
Bank of England Governor Andrew Bailey said the central bank must remain “very alert” to the impact of potential tariffs, telling MPs on the Treasury Committee that the tensions posed risks to global financial stability.
