Trump's Tariff War Risks Pushing Up UK Debt Costs

The UK government's finances are at risk due to the impact of Donald Trump's tariff war on the global economy. The FTSE 100 asset manager Schroders has warned that the US president's trade policies and tax-cutting plans will worsen debt dynamics worldwide. The interest bill on Britain's national debt may be dragged higher due to the influence of the US on the global economy and financial system.

Key Takeaways:

• The US Treasury yield has risen from 4.41% in April to 4.95% on Monday, while the UK 30-year gilt yield has climbed from 5.11% to 5.46% over the same period.
• Each percentage point increase in US Treasury yields causes the UK and French fiscal positions to deteriorate by about 1% of GDP, according to Schroders.
• The "huge uncertainty" caused by Trump's tariffs is adding to market concerns about the large US budget deficit, which could lead to rising US borrowing costs and those around the world.
• David Rees, of Schroders, notes that the "exorbitant privilege" of the US in funding large deficits is under threat, and even if foreign demand for treasuries holds up, rising yields could still drag long-term interest rates higher in the rest of the world.
• The Chancellor faces a shortfall of up to £30bn in her upcoming Budget in the autumn, partially due to rising debt costs.

Statistics:

• US 30-year Treasury yield: 4.95% (Monday), up from 4.41% in April.
• UK 30-year gilt yield: 5.46% (Monday), up from 5.11% in April.
• Potential increase in UK debt costs due to US yield increase: 1% of GDP (Schroders estimate).
• Projected shortfall of Chancellor's upcoming Budget: up to £30bn.
• Time frame for upcoming Budget: autumn.

Sources:

• Schroders (Asset Manager)
• Financial Times (FT)
• Bloomberg (Donald Trump's tariff war)