Chancellor Rachel Reeves is facing renewed pressure to loosen her strict fiscal rules, as the fallout from Donald Trump’s global tariff regime threatens to destabilise the UK economy.
Critics have long warned that Reeves’ tight budget planning leaving just £10bn in headroom on a £1.2tn budget offered little flexibility in the face of global shocks. That concern now appears well founded, following the US president’s decision to impose sweeping tariffs that are already rippling through international markets.
Despite the UK facing a lower 10% tariff compared to 20% for the EU, the broader impact of a global trade war could significantly dent growth forecasts. A downturn in global trade may suppress UK tax revenues and squeeze public finances further raising questions about whether Reeves can maintain her deficit and debt reduction targets.
The Office for Budget Responsibility has previously criticised Reeves for leaving minimal room to adjust to economic shocks. Historically, chancellors have allowed for larger buffers, with George Osborne keeping up to £30bn in reserve. But while Osborne used that headroom to shrink the state, Reeves is committed to driving growth and investment—making such caution politically and practically difficult.
Speculation is growing that Reeves may be forced to raise taxes in the autumn to remain within her self-imposed rules. Yet this would risk further harming consumer and business confidence just as investment is needed most.
For more political updates, visit London Pulse News.
