Britain risks Greek-style debt crisis from Trump tariffs
Eir Nolsoe
5 min read
Sir Keir Starmer met with business chiefs in the aftermath of Donald Trump’s tariffs announcement - Simon Dawson/No 10 Downing Street
Donald Trump’s trade war risks plunging Britain into a Greek-style debt crisis, investors have warned.
A weaker economy coupled with the Treasury’s razor-thin headroom leaves Britain exposed to a “negative spiral” similar to Greece’s debt meltdown a decade ago, according to one of the world’s biggest investment firms.
Neil Robson, head of global equities at Columbia Threadneedle, said Britain’s £2.8 trillion debt pile, which nearly outstrips the size of the economy, leaves it vulnerable as Mr Trump’s tariffs increase the risk of a global recession.
He said Britain’s current financial situation mirrored the lead-up to the eurozone meltdown, when bond markets turned aggressively against Greece when investors suddenly realised the country could not balance its books.
He said: “If you think about the problem of being very indebted, you can be as indebted as you like as long as your nominal growth is higher than your interest rate.
“But if ever your nominal GDP growth stalls – not just on a temporary basis – below your interest costs then you’re in a real negative spiral and it can move really quickly. We saw that with Greece during the great financial crisis.”
The warning comes after Donald Trump’s so-called “liberation day” tariffs wiped $5 trillion (£3.8 trillion) off global stock markets and slashed growth forecasts around the world.
The president slapped a flat 10pc tariff on all nations, rising to as high as 50pc for the worst off.
Although Britain escaped with the flat 10pc rate, its exposure to a global economy means growth forecasts are likely to be pared back and could trigger a crisis for UK debt, known as gilts, which are bought and sold by global investors.
‘Double blow’ for Britain
Bruno Schneller, the managing partner at Erlen Capital Management, warned that the bond markets could turn against the UK if investors lose faith in Ms Reeves’s economic plan.
“Mr Trump’s tariff blitz risks triggering a global stagflation shock – and for the UK, that’s a recipe for a gilt crisis,” he said.
“Slower growth, higher inflation and a jittery investor base could combine to push UK borrowing costs higher at the worst possible time. This isn’t just trade war fallout, it’s the kind of external shock that can crack already fragile debt markets.”
He added: “Trump’s tariffs could deal a double blow to the UK – stalling global growth while fuelling inflation. That’s a nightmare for any Chancellor trying to stabilise debt. If markets lose confidence in the UK’s fiscal path, a gilt sell-off isn’t just possible – it’s probable.”
It follows a dramatic week for the global economy after the scale of Mr Trump’s tariffs blitz caught markets by surprise.
The turmoil prompted investment bank JP Morgan to raise the risk of global recession this year to 60pc from 40pc, as investor panic rattled stock markets around the world.
Although UK gilts have been boosted so far by Mr Trump’s tariffs, investors have warned this could soon change.
“If Trump doesn’t course-correct, this crisis will affect many different areas in global markets,” Harald Berlinicke, partner at Sarnia Asset Management, said.
Risk of more tax rises
The gloomy message comes shortly after the Chancellor slashed welfare benefits to restore £9.9bn of fiscal headroom at the Spring Statement.
The Office for Budget Responsibility warned that in a worst-case scenario, a full-blown trade war risked wiping out all of the margin of error she had left herself against her fiscal rules.
The turmoil would be “something we are going to remember for a very long time”, Mr Robson said.
“Risks of recession have clearly gone up. I don’t see why there won’t be a recession at the moment. It’s difficult to see what the solution is unless America walks back on this,” he said.
Some of the world’s most important financial leaders have warned Mr Trump that his aggressive trade policies will wreak havoc by depressing growth and fuelling inflation.
Jerome Powell, the chairman of the US Federal Reserve, said on Friday that the president’s tariff increases were “significantly larger than expected” and so the same would “likely be true of the economic effects”.
Kristalina Georgieva, the chief of the International Monetary Fund, also warned: “Tariff measures clearly represent a significant risk to the global outlook at a time of sluggish growth.”
It comes at a time when many British businesses were already struggling in the face of still high interest rates, a £26bn tax raid on employers taking effect on Sunday and weak growth.
Business confidence had already slumped by a third between the middle and end of 2024, according to ADS. The trade association for aerospace, defence, security and space warned that half of businesses were planning to cut investment this year.
Aimie Stone, the ADS chief economist, said the survey “should act as a warning signal that industry confidence is wavering”.
