Deutsche Bank sees case for jobs and business aid as UK faces tariff fallout

Investing.com -- Over the weekend, UK Prime Minister Keir Starmer proposed plans to protect industries from the tariff war and is expected on Monday to announce a reduction in the government’s electric vehicle sales mandate, along with further measures to boost domestic competitiveness and shield British businesses from the fallout.

According to Deutsche Bank (ETR:DBKGn), the government could offer practical support similar to the measures taken during the pandemic. These could include a reintroduction of the furlough scheme, income support for self-employed individuals, a temporary uplift for recipients of universal credit and Working Tax credits, and various forms of business support such as cash grants, one-off restart grants, and business loans.

The bank expects the government to focus more on grants and lending facilities for businesses rather than direct household support, as businesses are likely to be more directly affected by the trade war. The most exposed industries, such as autos, steel, and machinery, could receive the most support.

The direct cost of the trade shock, as estimated by Deutsche Bank, is around GBP 6.5 billion, far below the GBP 170 billion total given during the pandemic. However, the bank suggests a wider range of GBP 5-10 billion could be more accurate, depending on the scale and duration of the impact.

Last week, Detsche Bank detailed the potential impacts of the Trump tariffs on the UK economy, predicting a reduction of 0.3pp to 0.6pp from UK GDP.

The bank also raised the possibility of further risks, including forced business closures and trade uncertainty, which could amplify the impact of the tariffs in the future. The labor market could also be affected, with a potential loss of 50k to 100k British jobs, it warned. 

Moving forward, Detsche Bank predicts the government will focus on deregulation and shifting policy costs further into the future, along with direct grants and more lending facilities for businesses.

The UK Government is also expected to work towards a trade deal with the U.S. to eliminate tariffs on UK exports. If a deal is not reached, the UK government has begun consultations to identify potential US products for counter-tariffs, a process due to conclude by May 1, 2025.