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Trump’s tariffs send UK borrowing costs soaring, forcing Reeves to rethink economic roadmap

Small businesses across the UK are urging the government to prioritise easier access to funding, subsidised AI training, and a more SME-friendly tax system as part of its economic growth strategy, according to a new report from Goldman Sachs.

Chancellor Rachel Reeves has been warned that her economic roadmap may need to be “ripped up” as a global market shock triggered by Donald Trump’s new wave of tariff threats drives up UK government borrowing costs and rattles investor confidence.

The yield on 10-year UK gilts surged to over 4.63%, as global markets reacted to the US President’s aggressive protectionist rhetoric. The tariffs, aimed at reshaping global trade relationships, have fuelled a flight to the US dollar and driven up borrowing costs across Western economies — including Britain.

Trump’s move comes just as Reeves had begun implementing Labour’s fiscal agenda, which includes a commitment to ramp up public investment. But the sudden tightening of fiscal conditions could derail those ambitions.

“Trump rants and the world pays,” said Ken James, Director at Contractor Mortgage Services. “We’ve seen gilt yields jumping and borrowing costs are up — will mortgage rates be next? Reeves’ roadmap may have to be ripped up.”

The impact of Trump’s tariffs is colliding with domestic fiscal vulnerabilities. A new report from the Office for Budget Responsibility (OBR) warned that Reeves’ recent U-turns on spending restraint had left the UK more exposed to future economic shocks, with Britain’s debt-to-GDP ratio projected to skyrocket to 270% by the early 2070s.

The OBR’s alarm bells come amid broader market anxiety. Investors are demanding higher returns to lend to the UK, reflecting both Trump-driven uncertainty and scepticism over the country’s ability to balance spending and debt.

“The pound is down against all major currencies,” said Tony Redondo, founder of Cosmos Currency Exchange. “Gilt yields are now spiking above Liz Truss levels — this is serious. The Chancellor’s fiscal headroom is shrinking by the hour.”

The repercussions are already being felt closer to home. With gilt yields rising, banks face higher wholesale borrowing costs — which could soon be passed on to consumers in the form of rising mortgage and loan rates.

“Higher gilt yields push up the cost of borrowing for lenders, which ultimately affects consumers,” said John Woolfitt, Director at Atlantic Capital Markets. “If inflation expectations rise due to global supply shocks, the Bank of England could even delay rate cuts.”

That leaves the Bank of England in a dilemma: support growth or tame inflation. Neither option is pain-free, particularly if trade disruption drags down GDP while pushing prices up.

Reeves’ immediate challenge is now fiscal: the higher cost of borrowing could add billions to the UK’s annual debt servicing bill. Each additional basis point on gilts translates to roughly £5 billion in extra annual costs.

“Just as Labour needs every penny for its promised reforms, each Trump-induced tweet is adding billions to Reeves’ tab,” said Kundan Bhaduri, entrepreneur at The Kushman Group. “It’s like watching your mortgage rate climb while someone else holds the ladder.”

Others warned of broader implications. David Stirling, Director at Mint Mortgages & Protection, said the rise in gilt yields could further weaken the housing market.

“Trump tweets, gilts jump, and Rachel Reeves winces. Mortgage rates could follow suit — bad news for anyone trying to get on the ladder before it’s pulled up.”

While some, like Samuel Mather-Holgate of Mather and Murray Financial, believe Trump may not follow through on his full list of tariff threats, the current volatility is already reshaping market expectations.

“Trump thrives on chaos, but his policies often fizzle. Still, this spike might be temporary — lenders may wait it out,” Mather-Holgate said. “But holidaymakers beware: the pound is falling fast against the euro.”

Meanwhile, Reeves must weigh the costs of sticking to her economic plans against the realities of market turbulence.

“Trump has created another fly in Labour’s inkwell,” said Ken James. “Her plans may now be unaffordable in the short term.”

As Trump’s tariff sabre-rattling ripples across global markets, the UK finds itself exposed. The combined pressures of higher borrowing costs, shrinking fiscal space, and a jittery bond market have delivered a clear warning to the Chancellor: this is not the environment she planned for.

With Labour only just in office and a fragile economy underfoot, the weeks ahead may force a fundamental rethink of Reeves’ economic ambitions — whether she likes it or not.

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Trump’s tariffs send UK borrowing costs soaring, forcing Reeves to rethink economic roadmap

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