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Britain’s economy will be among the hardest hit by the global trade war and inflation is set to climb, the International Monetary Fund (IMF) has warned – as it slashed its UK growth forecast by a third.

In a sobering set of projections, the Washington-based organisation said it was grappling with “extremely high levels of policy uncertainty” – and the global economy would slow even if countries manage to negotiate a permanent reduction in tariffs from the US.

Echoing earlier warnings about the risks to the global financial system, the IMF said stock markets could fall even more sharply than they did in the aftermath of Donald Trump‘s “Liberation Day” tariffs announcement, when US and UK indices recorded some of their largest one-day falls since the pandemic.

It comes as Chancellor Rachel Reeves prepares to meet her US counterpart Scott Bessent at the IMF’s spring gathering in Washington this week.

She is hoping to negotiate a reduction to the 10% baseline tariff the US president has applied to all UK goods. Steel, aluminium and car exports face an additional 25% tariff.

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HARD TO SEE A WIN FOR REEVES AHEAD


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Gurpreet Narwan

Business and economics correspondent

@gurpreetnarwan

As long as the world’s two largest economies are at war with each other, there will be considerable spillovers. The US and China account for 43% of the global economy.

If demand in either nation slows, that has ripple effects across the world. Tariff or no tariff, exporters to those markets will be hurt.

If China redirects its goods elsewhere, that could hurt domestic industries – jobs could be at stake.
US and Chinese investors might hit pause on global projects and stock market devaluations could hurt consumer confidence. Things could unravel quickly.

Against that backdrop, it is difficult to say with any certainty what would happen to the UK but, even if we find a way to sweet talk our way out of tariffs, the dark clouds of the global economy are moving in every direction.

Britain is an open and highly trade-sensitive economy (we have a trade-to-GDP ratio of around 65%) and global spillovers will rain on us.

Then there are the spillovers from the financial markets. The IMF warned that rising government borrowing costs were weighing on economic growth.
While rising UK bond yields are, in part, a reflection of investor unease over the UK’s growth and inflation outlook, they also reflect anxiety over the US trajectory.

It’s worth bearing all of this in mind if Chancellor Rachel Reeves emerges from her trip to Washington with a deal.

The Treasury would no doubt celebrate the achievement. After all, a reduction in tariffs could make a big difference to some industries, especially our car manufacturers who are currently grappling with a 25% levy on goods to their largest export market. However, it would not solve our problems.

In fact, it would barely make a difference to our overall GDP. Back in 2020, the government estimated that a free trade deal with the US would boost the UK economy by just 0.16% over the next 15 years.

And overall GDP does matter. The chancellor desperately needs economic growth to support the country’s ailing public finances (when the economy grows, so do government tax receipts).

She will know better than most that the prize the US has to offer is comparatively small, so she should weigh up the costs of any deal carefully.

The IMF presented a range of forecasts in its latest World Economic Outlook. Its main case looked at the period up to 4 April, after Mr Trump announced sweeping tariffs on countries across the world, ratcheting up US protectionism to its highest level in a century.

If the president were to revert to this policy framework, global growth would fall from 3.3% last year to 2.8% this year, before recovering to 3% in 2026.

In January, the IMF was predicting a rate of 3.3% for both years.

IMF

Nearly all countries were hit with downgrades, with the US expected to grow by just 1.8% this year, a downgrade of 0.9 percentage points.

Mexico was downgraded by 1.7 percentage points, while China and Canada are forecast to slow by 0.6 percentage points and Japan by 0.5 percentage points.

The UK economy is expected to grow by just 1.1% this year, down 0.5 percentage points from the 1.6% the IMF was predicting in January. Growth picks up to 1.4% next year, still 0.1 percentage points lower than the January forecast.

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Will tariffs hit UK growth?


Along with recent tariff announcements, the IMF blamed the UK’s poor performance on a rise in government borrowing costs, which has in part been triggered by growing unease among investors over the fate of the US economy.

When borrowing costs rise, the chancellor has to rein in public spending or raise taxes to meet her fiscal rules. That can weigh on economic growth.

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Trump: Tariffs are making US ‘rich’

It also pointed to problems in the domestic economy, mainly “weaker private consumption amid higher inflation as a result of regulated prices and energy costs”.

In a blow to the chancellor, the IMF warned that the UK would experience one of the largest upticks in inflation because of utility bill increases that took effect in April.

It upgraded its inflation forecast by 0.7 percentage points to 3.1% for 2025, taking it even higher above the Bank of England’s 2% target and deepening the dilemma for central bankers who are also grappling with weak growth.

Read more:
Can Reeves come up trumps in Washington?
Trump’s tariffs to have major global impact

Meanwhile, inflation in the US is likely to jump one percentage point higher than previously forecast to 3% in 2025 on the back of higher tariffs.

The IMF forecast period ended on 4 April. That was before the US president paused his reciprocal tariffs on countries across the world while ratcheting up levies on China.

In a worrying sign for finance ministers across the world, as they attempt to negotiate a deal with the US administration, the IMF said the global economy would slow just the same if Mr Trump were to make his temporary pause on reciprocal tariffs permanent.

That is because higher tariffs between the US and China, which together account for 43% of the global economy, would have spillover effects on the rest of the world that offset the benefits to individual countries.

“The gains from lower effective tariff rates for those countries that were previously subject to higher tariffs would now be offset by poorer growth outcomes in China and the United States – due to the escalating tariff rates – that would propagate through global supply chains,” the IMF said.

In response, Chancellor Rachel Reeves said:

“This forecast shows that the UK is still the fastest-growing European G7 country. The IMF have recognised that this government is delivering reform which will drive up long-term growth in the UK, through our plan for change.

“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade.”

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Labour MPs fear wipe out at next local election – as chancellor’s career is ‘toast’

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Labour MPs fear wipe out at next local election - as chancellor's career is 'toast'

Many Labour MPs have been left shellshocked after the chaotic political self-sabotage of the past week.

Bafflement, anger, disappointment, and sheer frustration are all on relatively open display at the circular firing squad which seems to have surrounded the prime minister.

The botched effort to flush out backroom plotters and force Wes Streeting to declare his loyalty ahead of the budget has instead led even previously loyal Starmerites to predict the PM could be forced out of office before the local elections in May.

“We have so many councillors coming up for election across the country,” one says, “and at the moment it looks like they’re going to be wiped out. That’s our base – we just can’t afford to lose them. I like Keir [Starmer] but there’s only a limited window left to turn things around. There’s a real question of urgency.”

Another criticised a “boys club” at No 10 who they claimed have “undermined” the prime minister and “forgotten they’re meant to be serving the British people.”

There’s clearly widespread muttering about what to do next – and even a degree of enviousness at the lack of a regicidal 1922 committee mechanism, as enjoyed by the Tories.

“Leadership speculation is destabilising,” one said. “But there’s really no obvious strategy. Andy Burnham isn’t even an MP. You’d need a stalking horse candidate and we don’t have one. There’s no 1922. It’s very messy.”

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Starmer’s faithfuls are ‘losing faith’

Others are gunning for the chancellor after months of careful pitch-rolling for manifesto-breaching tax rises in the budget were ripped up overnight.

“Her career is toast,” one told me. “Rachel has just lost all credibility. She screwed up on the manifesto. She screwed up on the last two fiscal events, costing the party huge amounts of support and leaving the economy stagnating.

“Having now walked everyone up the mountain of tax rises and made us vote to support them on the opposition day debate two days ago, she’s now worried her job is at risk and has bottled it.

“Talk to any major business or investor and they are holding off investing in the UK until it is clear what the UK’s tax policy is going to be, putting us in a situation where the chancellor is going to have to go through this all over again in six months – which just means no real economic growth for another six months.”

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Why is the economy flatlining?

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After less than 18 months in office, the government is stuck in a political morass largely of its own making.

Treasury sources have belatedly argued that the chancellor’s pre-budget change of heart on income tax is down to better-than-expected economic forecasts from the Office for Budget Responsibility.

That should be a cause of celebration. The question is whether she and the PM are now too damaged to make that case to the country – and rescue their benighted prospects.

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Shabana Mahmood is the new hard woman of British politics – and potential successor to Starmer

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Shabana Mahmood is the new hard woman of British politics - and potential successor to Starmer

We’re told that Shabana Mahmood, the still new home secretary, is “a woman in a hurry”.

She’s been in the job for 73 days – and is now announcing “the most sweeping reforms to tackle illegal migration in modern times” – effectively since the Second World War.

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Her language is not just tough – it’s radical. Not what you’d have expected to hear from a Labour home secretary even just a few months ago.

“Illegal migration”, she believes, “is tearing our country apart. The crisis at our borders is out of control”.

Her team argues that those never-ending images of people crossing the Channel in small boats have led to a complete loss of faith in the government’s ability to take any action at all – let alone deliver on its promises.

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‘Illegal migration is creating division across our country’.

The political reality is that successive failures of Tory and Labour ministers have fuelled the inexorable rise of Reform.

More on Migrant Crisis

But speaking to Sir Trevor Phillips on Sky News, Ms Mahmood firmly hit back at suggestions today’s announcements are pandering to a racist narrative from the far right.

“It’s not right-wing talking points or fake news or misinformation that is suggesting that we’ve got a problem,” she said.

“I know, because I have now seen this system inside out. It is a broken system. We have a genuine problem to fix. People are angry about something that is real.

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Trevor’s takeaway

“It is my job, therefore, to think of a proper solution to this very real problem, to do so in line with my values as a Labour politician, but also as a British citizen, and to have solutions that work so that I can unite a divided country.”

There are many striking elements to this.

While she’s not been in the job for all that long, her government has been in power for 16 months. Her own press release highlights that over the past full calendar year asylum claims here have gone up by 18% – compared with a drop of 13% elsewhere in the EU.

The UK, she argues, has become a “golden ticket” for asylum seekers due to “far more generous terms” than other countries in Europe.

While she politely insists that her predecessor’s policies – the one in one out deal with France, closer partnership with law enforcement across Europe – are beginning to take effect, the message is clear. No one in office before Shabana has had the stomach to grasp the nettle.

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Inside Europe’s people smuggling industry

The Home Office is determined to present their boss as the new hard woman of British politics.

In a bleak warning to those in her party who will be deeply uncomfortable with this unflinching approach, we’re told she believes this is “the last chance for decent, moderate politics”.

“If these moderate forces fail, something darker will follow…. if you don’t like this, you won’t like what follows me.”

That’s a clear reference to the anti-asylum policies of Reform and the Conservatives, who are pledging to leave the European Convention on Human Rights and deport all illegal arrivals.

Both parties have responded by effectively claiming they don’t trust Labour to deliver on this, given they believe the government has lost control of our borders and overseen a surge in asylum claims.

That much Ms Mahmood herself has already acknowledged.

It’s unusual to hear a Conservative shadow minister like Chris Philp responding to a government announcement by claiming they will support the “sensible steps” the Home Office is making.

Unsurprisingly, he went on to belittle her ideas as “very small steps” combined with “gimmicks” – but the main thrust of his critique was that Labour lacks the authority to push these kinds of measures through parliament, given the likely opposition from their own left wingers.

It’s a fair point – but the lack of fundamental disagreement highlights the threat these plans pose to her opponents.

If the government looks like it might actually succeed in bringing down the numbers – and of course that’s a colossal if – Ms Mahmood will effectively have outflanked and neutralised much of the threat from both the Tories and Reform.

That’s why she’s so keen to mention her Danish inspiration – a centre-left government which managed to see off the threat from right-wing parties through its tough approach to migration, without having to leave the ECHR.

Read more:
Migrants shopping for life jackets: Inside the route to the Channel
Here’s how the Danish migration model works

The Home Office is planning further announcements on new safe and legal routes.

But refugee charities have described the new measures as harsh, claiming they will scapegoat genuine refugees, fail to integrate them into society, and fail to function as a deterrent either.

There will surely be an almighty internal row among Labour MPs about the principle of ripping up the post-war settlement for refugees.

For a government floundering after the political chaos of the last few weeks and months, Ms Mahmood is a voice of certainty and confidence.

At a moment of such intense backroom debate over the party’s future direction, it’s hard to avoid seeing her performance this weekend as a starting pitch for the leadership.

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Kidlington fly-tipping: Drone footage shows scale of ‘revolting’ 60m-long mountain of waste next to river

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Kidlington fly-tipping: Drone footage shows scale of 'revolting' 60m-long mountain of waste next to river

Drone footage has shown hundreds of tonnes of “revolting” illegal waste, fly-tipped in a field next to the River Cherwell near Kidlington in Oxfordshire.

The Sky News video shows the mass of rubbish, which is at least 60m long, 15m wide and stacked 10m high, and weighs hundreds of tonnes.

Calum Miller, Liberal Democrat MP for Bicester and Woodstock, told Sky News it was the first time he had seen anything on this scale, questioning whether the Environmental Agency had the resources to deal with it.

The cost of removing the waste is estimated to be more than the entire annual budget of the local council, which is around £25m.

Calum Miller, Liberal Democrat MP for Bicester and Woodstock
Image:
Calum Miller, Liberal Democrat MP for Bicester and Woodstock

The cost of removing the waste is estimated to be more than the entire annual budget of the local council, which is around £25m.

With the site on a floodplain, Mr Miller listed what he saw as the three major environmental risks – waste being washed into the waterways, rain seeping through the waste and carrying toxins into the water and the danger of decomposing chemicals presenting a fire risk.

Pic: Sky News
Image:
Pic: Sky News

He said the police had used a helicopter with a heat-seeking camera, and could see that some of the waste was indeed starting to decompose.

The site is adjacent to the A34, a busy road running through cities including Oxford and Birmingham.

Mr Miller said he believed the Environment Agency was first made aware of the issue back in July.

He said he believed it was the work of “organised criminal gangs” and raised a “bigger systemic problem around the country”, with “dumps are cropping up in more and more places”.

He went on: “My concern is the Environmental Agency lacks the resources to deal with criminal activity on this scale. I’m calling on the government to take action and ensure those who are dealing with such incidents have the powers they need to tackle it at source.”

Friends of the Thames’s chief executive officer, Laura Reineke, told Sky News she became aware of the dumping site around 10 days ago, calling it “the biggest ecological disaster that’s happened on an inland waterway in this country”.

The head of the charity dedicated to protecting, restoring and celebrating the River Thames, said the fact that the area had been prepared with large earth-moving vehicles and that the rubbish was “pre-shredded”, then dumped so neatly showed the operation had been “very well organised”.

Chief executive officer of Friends of the Thames Laura Reineke
Image:
Chief executive officer of Friends of the Thames Laura Reineke

The culprits are yet to be caught.

Ms Reineke went on: “What is most horrifying is that the Environment Agency have known about this since 10 September, and they have done nothing about it.”

Pic: Sky News
Image:
Pic: Sky News

She also questioned the Environmental Agency’s management of the situation, calling it “a story of total incompetence”.

Ms Reineke called the delay “a death sentence for the River Cherwell and the wider Thames catchment”, labelling it “ecocide on an epic scale”.

She added: “This dump isn’t only a catastrophe for the freshwater species in our waterways, it’s also a public health issue. We don’t know what these chemicals are, they should have been tested.”

Pic: Sky News
Image:
Pic: Sky News

The Environment Agency told Sky News it has obtained a court order to close the site to all public access for at least six months.

A spokesperson said: “Specialist officers are investigating waste dumped near the A34 at Kidlington. Their role will be to find who left the waste there and take appropriate action.

“We share the public’s anger about incidents like this, which is why we take action against those responsible for waste crime,” asking anyone with information to call their 24-hour incident hotline.

This summer, Sky News produced an exclusive report on the growing problem of waste crime, followed up in October by a report into an illegal dump in Wigan.

In a report released last month, the Lords Environment and Climate Change Committee warned that organised crime gangs are illegally dumping millions of tonnes of waste across the countryside every year.

The committee identified incompetence at the Environment Agency as a factor in the growing crisis.

Philip Duffy, the agency’s chief executive, hit back, saying: “I think it’s very unfair on my hardworking staff to be accused of incompetence.”

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