The economists predict a potential US trade war would reduce UK economic output by 0.8% by 2027, leaving the country £21.6bn worse off and adding pressure to public finances.

This economic damage is forecast despite the UK potentially facing lower tariffs (10%) compared to the EU (20%) and China (54%). Yael Selfin, KPMG’s chief UK economist, warned of “huge implications for the Chancellor,” citing the fallout from a global trade war, potential retaliatory tariffs from other nations, and the damaging effect of uncertainty on confidence.

Reflecting these concerns, KPMG has lowered its UK growth forecast for this year significantly, from 1.7% to 0.8%, noting the fragility of public finances.

With the US being the UK’s largest export partner, businesses are concerned. A British Chambers of Commerce (BCC) survey found 62% of firms trading with the US expect negative impacts, with a third planning price increases. Few favour retaliation, with lobby groups like the BCC urging the government to prioritise negotiating a trade deal with the US.

KPMG also highlighted wider pressures, including knock-on effects from a potential Eurozone slowdown and the possibility of cheap goods flooding the UK market as other nations seek alternative destinations, increasing competition for domestic producers.

To mitigate the economic pressure, Ms Selfin suggested the Bank of England might lower interest rates, forecasting cuts from the current 4.5% possibly down to 3.25% by 2026.