The UK economy is set to face significant challenges over the next two years, with the EY Item Club downgrading its forecast for GDP growth to just 0.8% in 2025, down from a prior prediction of 1%.
This adjustment comes amid the continuing fallout from the trade policies implemented by US President Donald Trump, including a series of tariffs that are expected to further dampen consumer spending and business investment in the UK.
This grim economic outlook follows a concerning poll from Ipsos Mori, which reveals that three-quarters of Britons expect the economy to worsen over the next year.
The survey, which tracks net economic optimism in the UK since 1978, recorded a net score of -68, the lowest figure ever seen in the poll’s history.
Only 7% of Britons believe the economy will improve, while 13% expect it to stay the same.
Tariffs Taking a Toll on UK Exports and Consumer Confidence
The direct impact of US tariffs on UK exports is expected to be significant, with approximately 16% of UK goods exports heading to the US.
Products such as cars, steel, and aluminium face particularly steep tariffs of 25%, which are anticipated to reduce demand for UK products in the American market.
However, the EY Item Club highlights that the indirect effects of Trump’s tariff policies will be even more profound.
UK consumers, already cautious about large purchases, are likely to become even more reluctant to commit to spending as the cost of goods rises due to tariffs.
Likewise, businesses are expected to reduce investment over the coming years in response to increasing uncertainty and potential disruption to their supply chains.
Andrew Bailey, Governor of the Bank of England, has also warned that the UK faces a “growth shock” as a result of these tariff policies, which are compounding the economic pressures already felt from slower global growth.
Impact on Business Strategies and International Trade
Faced with rising tariffs and economic uncertainty, UK businesses are shifting focus to diversify their export markets.
Research by BDO, an advisory and accountancy firm, reveals that nearly one-third of mid-sized UK businesses plan to expand into Asia, Africa, and Australia over the next year, as part of a strategy to reduce dependence on the US market.
Despite the difficulties presented by tariffs, Richard Austin, a partner at BDO, commented: “Although conditions remain challenging, the UK’s mid-sized businesses are highly ambitious and have their sights firmly set on driving growth.”
Austin added that these businesses, which generated £130 billion in overseas trade last year, remain crucial to the UK economy.
Notably, Apple is reportedly planning to shift the assembly of all iPhones destined for the US market to India, as part of an ongoing effort to reduce its reliance on Chinese manufacturing amid the US-China trade war.
This move is seen as part of a broader trend of companies seeking to diversify their supply chains in response to Trump’s tariffs.
A Slower Road to Recovery
The UK economy’s prospects for recovery remain uncertain, with the IMF also revising down its 2025 growth forecast for the UK to 1.1% from a previously projected 1.6%.
As businesses brace for continued tariff challenges, the focus is likely to remain on adaptation—with firms seeking new international markets and investing in strategies to mitigate tariff impacts.
With the Brexit transition still lingering and US tariffs continuing to affect global trade, the UK’s economic growth is likely to be subdued in the short term.
The focus will need to be on how businesses and policymakers can collaborate to foster resilience and stimulate growth amid this uncertain environment.