‘Very limited’ tariff war could be ‘mildly positive’ for UK, suggests OBR member

A “very limited” tariff war that the UK stays out of could be “mildly positive” for the UK, according to a member of the budget watchdog.

Professor David Miles, a member of the Office for Budget Responsibility’s (OBR) responsibility committee, told MPs that there could be a scenario where some things become cheaper in the UK, but warned that most possible outcomes are still “negative” when it comes to tariffs.

He also warned that tariffs from the US at 20% or 25% could “knock out” the Government’s financial headroom if maintained for five years.

It comes as Donald Trump is set to unveil sweeping tariffs on goods from around the world on Wednesday, with the UK expecting to be impacted by the event the president has dubbed “liberation day”.

Speaking to the Treasury Committee on Tuesday, Professor Miles said: “Let’s suppose there’s a very limited tariff war. So it’s China, Mexico, Canada, countries that are already, it’s pretty clear what Trump is going to do, and that’s it, and the UK stays out of it, so does most of the rest of the world.

“It wouldn’t be unreasonable to think that could be, if anything, very mildly positive for the UK.

“Because there’s a bit of trade that will get diverted to the UK, and some of the exports from China, for example, that would have gone to the US, they’ll be looking for a home for them in the rest of the world.”

He said that in that scenario “stuff will be available in the UK a bit cheaper than it otherwise would have been”.

Prof Miles added: “So there is one, not central scenario at all, which is very, very mildly potentially positive to the UK. All the other ones which involve the UK facing tariffs are negative, and they’re negative to very different extents.”

The UK has been seeking to negotiate an exemption from the tariffs, but Business Secretary Jonathan Reynolds was reluctant to put a time frame on that.

Mr Trump has already announced a 25% import tax will be introduced on all cars imported to the US.

The levy is on top of a series of tariffs set to come into effect on April 2, which could include a general 20% tax on UK products in response to the rate of VAT, which Mr Trump deems to be discriminatory against the US.

Taking questions as part of an evidence session on the spring statement, Prof Miles told the cross-party committee: “If tariffs at 20, 25% were put on the UK and maintained for five years, our assessment of what that does is that it will knock out all the headroom that the Government currently has.”

He said that had they made that a central forecast in their documents and “had the Government not changed policy at all, knowing that we were going to take that as our central forecast, then the headroom would have pretty much all gone”.

In their forecast, which accompanied last week’s spring statement, the OBR had warned that the impact of imposing reciprocal tariffs on the US would be worse for the UK than allowing the levy to go ahead unimpeded.

They said the most “severe” scenario, in which the UK and other nations retaliated to the imposition of tariffs, would see GDP 0.6% lower than forecast this year and 1% lower next year.

This scenario would also “almost entirely eliminate” the Chancellor’s £9.9 billion headroom against her fiscal rules, potentially forcing her to implement further spending cuts or tax rises.

An alternative scenario, in which the UK does not retaliate, would see a smaller reduction in growth, with GDP 0.4% lower than expected this year and 0.6% lower next year.