‘The US effective tariff rate surged past levels reached during the Great Depression,’ say leading economists
Donald Trump’s intensifying trade war could wreak havoc on the global economy and deal a particularly damaging blow to the United Kingdom, according to a stark new warning from the International Monetary Fund.
In its most damning assessment yet, the IMF slashed the UK’s 2025 growth forecast by 0.5 percentage points to just 1.1%, citing the ripple effects of the former US president’s sweeping tariff measures. Inflation is also set to rise more sharply than previously expected, with the Fund revising its projection up by 0.7 points to 3.1%.
The Washington-based institution laid out in detail the global economic turbulence being stirred by Trump’s protectionist agenda, which it said has driven up the effective US tariff rate beyond levels last seen during the Great Depression.
“Since late January, a flurry of tariff announcements by the United States — initially targeting Canada, China, and Mexico, and later expanding across critical sectors — culminated in near-universal levies on 2 April,” the report stated. “The global economic system under which most countries have operated for the last 80 years is being reset. Existing rules are challenged while new ones are yet to emerge.”
The IMF cut America’s own growth forecast by a sharp 0.9 percentage points to 1.8% for 2025, amid what it called “significant” disruption to supply chains, export demand, and investor confidence. The dollar, too, has taken a hit, as investors flee to safer currencies amid growing uncertainty.
Pierre-Olivier Gourinchas, the IMF’s Economic Counsellor, said: “We expect that the sharp increase on April 2 in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term.”
As the economic chaos unfolds, the IMF lowered its global growth forecast to 2.8% for 2025 and 3% for 2026 — a combined downgrade of 0.8 percentage points compared to January’s figures. The Fund noted that, absent the US-led tariff onslaught, global growth would have only dipped slightly by 0.2 points, underscoring the impact of Trump’s trade upheaval.
The UK, while still forecast to outpace its European G7 counterparts, will face a turbulent road ahead. “This reflects a smaller carryover from 2024, the impact of recent tariff announcements, an increase in gilt yields, and weaker private consumption amid higher inflation,” the IMF said.
Responding to the report, Chancellor Rachel Reeves attempted to strike an optimistic tone: “This forecast shows that the UK remains the fastest-growing European G7 economy. But the world has changed, and that’s why I’ll be in Washington this week defending British interests and making the case for free and fair trade.”
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Nonetheless, the downgraded forecasts could seriously hamper her upcoming Budget plans and stoke speculation that tax hikes may be needed in the autumn to fill the fiscal gap.
Shadow chancellor Mel Stride was quick to pounce, accusing Labour of failing to shield the UK from global volatility. “At a time when families are looking for stability and support, Labour’s policies are stifling growth, pushing up the cost of living and leaving us vulnerable to external shocks,” he said.
The IMF’s outlook was similarly bleak for other advanced economies. Germany is now projected to see no growth in 2025, while France, Italy, and Japan are all forecast to expand by just 0.4 to 0.6%. Canada fares slightly better, with growth of 1.4% anticipated.
Prime Minister Sir Keir Starmer, who has called for a robust US-UK trade agreement to buffer the UK economy, reaffirmed his commitment to making Britain the fastest-growing country in the G7. Yet with global trade order in turmoil and tariffs rising on all sides, the road to recovery may prove long and fraught.
