The Rest Is Money 152. Liberation Day: Will Trump’s Tariffs Kill Reeves’ Growth?
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Apr 2, 2025 In this discussion, Richard Hughes, Head of the Office for Budget Responsibility, shares insights on the potential economic fallout from Donald Trump's tariffs. He evaluates the influence of the OBR on government policies and how it might hinder growth, while Rachel Reeves' fiscal 'headroom' could quickly diminish. Their conversation dives into the unpredictable nature of economic forecasting amid global constraints, the pressing need for sustainable investment, and the implications for the UK’s fiscal health.
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Impact of US Tariffs on UK
- The UK would see a 0.6% output reduction if the US imposed 20% tariffs without retaliation.
- Retaliation would increase this reduction to 1%, impacting the UK indirectly through reduced trade with other nations.
Chancellor's Fiscal Headroom
- Chancellor Jeremy Hunt's fiscal headroom is small, around 1% of the total tax and expenditure in five years.
- This headroom is vulnerable to even minor economic changes, including potential US tariffs.
Risk to Fiscal Targets
- The probability of Chancellor Hunt meeting his fiscal targets is estimated at 54%, one of the lowest ever.
- This low probability reflects the current economic volatility and minimal headroom against potential shocks.