Britons have been warned of a ‘significant impact on living standards’ as Donald Trump’s escalating trade war puts the UK economy under pressure, driving up prices and threatening growth.
Experts have slashed the UK’s economic forecast, warning that rising tariffs and global trade tensions could weaken consumer spending, fuel inflation, and slow down job creation.
The downgrades come as Trump’s new tariffs on imports from Canada, Mexico and China have already sent financial markets reeling.
Countries have been quick to retaliate, raising fears of a potential US recession. The UK’s economic forecast has been cut to 1.4 per cent in 2025 and 1.2 per cent in 2026.
These figures represent a significant downgrade from previous OECD predictions of 1.7 per cent and 1.3 per cent respectively.
The UK’s inflation outlook remains unchanged at 2.7 per cent this year and 2.3 per cent in 2026.
The OECD warned that “consumers face much of the burden of higher tariffs” as it cautioned over a “significant” impact on living standards.
“Further fragmentation of the global economy is a key concern,” the organisation stated in its interim economic outlook report.
Chancellor Rachel Reeves has came under fire for her fiscal policies POOLFor the world economy, the OECD has forecast growth to slow from 3.2 per cent in 2024 to 3.1 per cent in 2025 and three per cent in 2026.
These figures are down from the 3.3 per cent previously forecast for both years, largely due to trade tensions.
Canada and Mexico have been hit hardest by Trump’s harsh tariffs, with Canada’s growth more than halving to 0.7 per cent this year and next.
Mexico is predicted to enter recession, with output shrinking by 1.3 per cent in 2025 and 0.6 per cent in 2026. The US itself faces economic woes, with growth trimmed to 2.2 per cent in 2025 and 1.6 per cent in 2026.
The OECD warns that higher trade barriers will “hit growth around the world and add to inflation.”
Inflation in G20 countries is forecast to rise to 3.8 per cent this year and 3.2 per cent next year. These figures are up from the 3.5 per cent and 2.9 per cent predicted in December. Interest rates are likely to remain higher for longer as a result of increased inflation.
The OECD cautioned: “Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets.”
Chancellor Rachel Reeves acknowledged the global challenges highlighted in the report.
The Chancellor has been dealt another blow to her fiscal agenda as economy growth forecasts have been downgraded GETTY She said: “This report shows the world is changing, and increased global headwinds such as trade uncertainty are being felt across the board.
“A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.”
She added that this approach would help Britain “better respond to global uncertainty”.
The Chancellor’s comments come as the UK navigates the impact of international trade tensions.
Earlier this month, Trump’s new policies came into effect, imposing 25 per cent tariffs on imports from Canada and Mexico. Canadian energy products received a lower 10 per cent tariff.
The 10 per cent tariff previously placed on Chinese imports in February has now doubled to 20 per cent. Trump has also pledged hefty tariffs on Europe in the future.
Trump has made tariffs central to his agendaREUTERS
While the UK has so far avoided harsh penalties, it has been affected by last week’s sweeping 25 per cent tariffs on steel and aluminium entering America.
Financial markets were sent reeling last week over fears these measures could spark a recession in the US.
Europe will be severely impacted by the trade war, with sharp downgrades across the board. The euro area as a whole is now set to see growth of just one per cent in 2025, down from 1.3 per cent previously forecast.
Growth in China is projected to slow from 4.8 per cent this year to 4.4 per cent in 2026.
The OECD urged cooperation, stating: “Governments need to find ways of addressing their concerns together within the global trading system.”
It warned that “a broad-based further increase in trade restrictions would have significant negative impacts on living standards.”