The UK economy is forecast to slow dramatically over the next two years as Donald Trump’s global tariff policies weigh heavily on business investment and consumer spending, according to a report by EY Item Club. The forecaster now predicts UK GDP will grow by just 0.8% this year, down from a previous estimate of 1%. Its 2026 growth forecast has also been cut sharply from 1.6% to 0.9%.

Meanwhile, public confidence has collapsed. A new Ipsos Mori poll reveals that three-quarters of Britons expect the economy to worsen in the coming year — the lowest optimism score recorded since tracking began in 1978. Only 7% believe conditions will improve.

The fallout from Trump’s tariff war is hitting UK exports hard, particularly in sectors facing steep U.S. import tariffs on goods like cars, steel, and aluminum. About 16% of UK goods exports head to the U.S., making the British economy vulnerable to shifts in American trade policy.

However, UK businesses are responding proactively. A growing number of mid-sized companies are targeting new markets in Asia, Africa, Australia, and EU states. A BDO survey showed that nearly 40% of UK firms plan to expand exports over the next year, with retailers, wholesalers, and tech companies leading the charge.

Despite the challenging environment, British businesses remain ambitious, contributing £130 billion in overseas revenue last year and pushing to offset risks from the U.S. market shift.