Michelle ThompsonThe EY Item Club forecasts a GDP growth of just 0.8% this year, while an Ipsos Mori poll reveals that three-quarters of Britons expect the economy to decline.
The UK economy is expected to experience a significant slowdown over the next two years as Donald Trump’s global tariff war impacts consumer spending and business investment, according to a leading forecast.
The EY Item Club’s findings, sponsored by the accounting firm EY, come as a separate survey revealed that confidence in the UK economy has fallen to its lowest point ever.
Ipsos Mori’s latest poll, which has tracked net economic optimism in the UK since 1978, found that three-quarters of Britons expect the economy to worsen in the next year. Only 7% believe it will improve, while 13% think it will remain the same, resulting in a net score of -68. EY’s forecast now predicts the UK’s GDP will grow by just 0.8% this year, down from its February projection of 1%, and has lowered its 2026 forecast from 1.6% to 0.9% due to the long-term effects of these challenges.
The International Monetary Fund (IMF) also downgraded its UK growth forecast to 1.1% from 1.6%, while the Bank of England’s governor, Andrew Bailey, described the UK as facing a “growth shock” from Trump’s trade policies.
With 16% of UK goods exports going to the US—where tariffs of 10% apply to most goods and 25% to cars, steel, and aluminum—demand for UK products is expected to fall, directly affecting growth.
However, the bigger impact is likely to come from the indirect consequences of these policies, which are already weighing on cautious British consumers, especially in terms of spending on major purchases. Additionally, businesses are expected to limit investment over the next two years.
In response to potential supply chain disruptions caused by tariffs, British businesses are increasingly targeting new export markets in Asia, Africa, and Australia. A survey of 500 mid-sized UK businesses by BDO found that nearly a third plan to expand or export overseas in the next year, with more than 40% of businesses planning to increase exports. Specifically, over one-third of those aiming to boost international sales are focused on Africa, 38% on Australia, and 30% on Asia.
Moreover, UK exporters are expected to focus more on EU nations, with 41% of mid-sized businesses planning to grow sales to EU countries.
Richard Austin, a partner at BDO, remarked, “Although conditions remain challenging, the UK’s mid-sized businesses are highly ambitious and focused on driving growth.” These businesses generated £130bn in revenue from overseas trade last year, positioning them as the strongest engine of the UK economy.
Additionally, reports emerged last week that Apple plans to shift its iPhone assembly for the US market to India, as the company seeks to reduce its reliance on Chinese manufacturing amid the ongoing trade war.
