How Trump's Tariffs Could Affect Personal Finances In The UK
6 min read
The White House may be many thousands of miles away, but Donald Trump's 'liberation day' tariffs could have far-reaching consequences for the finances of people in the UK.
Last week, the US president announced a minimum 10 per cent tariff on all imports to the US, in an unprecedented move which Trump said would rekindle 'the American Dream'.
A tariff is a tax imposed on a business importing a good from abroad.
Trump argues that his policy of sweeping tariffs will boost American manufacturing, but virtually all economists agree that they drive up prices for the consumer by making goods more expensive. His White House announcement triggered turmoil in the global markets, leading to warnings that the US was heading for a major financial crisis.
Trump on Wednesday said that he was pausing higher tariffs on most countries for 90 days, admitting that people were starting to become "yippy" in response to the original announcement.
China, however, was excluded from this. Trump said that he was putting 125 per cent tariffs on Chinese imports and accused Beijing of a "lack of respect" after it retaliated with 84 per cent tariffs of its own. Economists have warned that an escalating trade war between the two biggest economies will have negative consequences for the rest of the world.
The latest developments mean that, at the time of writing, the UK faces a baseline tariff of 10 per cent on goods entering the US.
The Keir Starmer government is in talks with the Trump administration about a new UK-US economic deal that it hopes will lead to the removal of this tax. However, for now, it remains the US president's plan.
When PoliticsHome asked a Downing Street spokesperson about the potential impact this could have on the finances of people in the UK, they said the government would always "take decisions that would prioritise stability and put more pounds in people's pockets".
"The government's number one concern is always delivering economic stability in order to deliver economic growth and higher living standards for people."
The No10 spokesperson added: "People have been through a lot in recent years, with the cost of living challenge, which the PM has previously recognised is not over for people, and that is why the government's agenda is about putting economic stability first and then delivering economic growth so that we do deliver higher living standards."
How could Trump's tariff war impact the personal finances of people in the UK?
Inflation
Inflation, the speed at which prices rise, fell to 2.8 per cent in the UK in February, according to the Office for National Statistics' latest update at the end of last month.
However, this week the Bank of England (BoE) warned that the US president's tariffs and impacted governments' retaliatory tariffs had created "increased uncertainty over the outlook for inflation globally" — meaning the UK could be affected.
If global tariffs do fuel inflation in the UK, then prices in supermarkets and elsewhere will rise more sharply, meaning everyday cost-of-living pressures could start to feel more acute.
Pensions
Many people use private pension funds to save for retirement. These funds are invested in stocks to ensure long-term growth. However, private pension funds risk losing value when markets become volatile or experience a downturn, as has happened in recent days.
Steve Webb, a former pensions minister and now a partner at pension consultants LCP, said the impact on pensions would vary by age group and how pensions are managed.
Those "nowhere near retiring" are unlikely to face significant damage to their pensions, he told PoliticsHome, because they have more time to change their arrangements if necessary.
However, "the closer you are to retirement, the less time you've got to adjust."
Webb said that those approaching retirement age who live off an invested pension may have to take steps to make up for any shortfall, like working for longer than planned.
"If your pot's going to be smaller than you thought, and you haven't really got time to do much about that, then one option might be you retire later, retire six months later, or a year later, to give your pot more time to build back up again," the former MP said.
Webb said there is little the government can do to protect the value of these pensions other than make sure "that there are people who know what they're doing overseeing the money".
ISAs
The instability of the stock markets will not impact cash ISAs, but will impact stock and shares ISAs, which work by investing consumer cash into stocks and shares.
Like with private pension funds, ISAs invested in stocks and shares face losing their value in the face of Trump's tariff war.
Chancellor Rachel Reeves is reportedly looking at introducing measures to encourage people to save money using stocks and shares ISAs, rather than cash ISAs. Speaking to MPs on the Treasury select committee last week, Reeves said: "I do think that reform would be worthwhile and that’s what we’re looking at at the moment.”
According to Webb, however, she may be now tempted to think again.
"Reeves is rumoured to think that Brits have far too much money in cash, and that if only they didn't have such a good tax break on cash, then more money would go into the stock market, and more money would be invested for growth.
"Well, if they'd made this change a year ago, and they had all pumped their money into the stock market, they would be looking for someone to blame right now."
Mortgages
One of the side effects of Trump's tariffs is that it may become cheaper for prospective homeowners to become mortgage holders.
Due to growing concerns among economists that a global tariff war could damage UK economic growth and risk recession, there is now a growing belief that the BoE could cut interest rates further than previously predicted in a bid to mitigate the damage.
Historically, interest rates have often been cut in a bid to stimulate the economy during a recession.
Laith Khalaf, head of investment analysis at AJ Bell, said amid the volatility caused by the tariffs there may be "a silver lining for UK mortgage borrowers".
"Interest rate expectations are falling as markets price in the potential economic damage from US tariffs, and the likelihood the Bank of England will respond with interest rate cuts," Khalaf told PoliticsHome.
“The market had been pricing in two interest rate cuts this year, but in short order that has now been ratcheted up to three, which would take the base rate to 3.75 per cent by the end of 2025 (based on LSEG data)."
A number of mortgage lenders have already started cutting rates in anticipation of the Bank going further than previously expected.
Petrol
Another possible silver lining comes in the form of petrol prices.
Amid warnings about the US falling into recession as a result of Trump's tariffs, oil prices have started to fall in recent days. This is because a country in recession is seen as having less demand for oil as there is less economic activity.
Oil prices have been falling on a global scale in light of the president's announcement, and this phenomenon is expected to be reflected in the cost of fuel at UK petrol stations.
