Rachel Reeves‘ impact on the UK economy threatens to blow a £57billion hole in Britain’s public finances, a thinktank has warned. The National Institute of Economic and Social Research (NIESR) said the Chancellor’s plans have undermined business confidence and growth much more than US President Donald Trump‘s tariffs.

According to NIESR, the impact of Mr Trump’s trade war is expected to reduce Britain’s economic growth by 0.1 percentage points. But it said the harm caused by the Labour Government’s tax hikes and uncertainty were causing more damage. Benjamin Caswell, an economist at NIESR, said: “Tariffs have engendered a lot of uncertainty, but I don’t think that should take the Government off the hook.

“There has been a lot of uncertainty engendered through the Spring Statement and through some of the Budget measures.”

He told the Telegraph that fears of further tax increases in the autumn are also holding the economy back, with firms “playing a wait-and-see game”.

Th is means businesses are scaling back capital expenditure and recruitment with vacancies dropping “very dramatically”, according to the expert.

Mr Caswell explained that on the back of the weaker economic outlook NIESR is projecting lower tax receipts which it said would mean the Government won’t meet either of its fiscal rules.

NIESR warned Ms Reeves would miss her rule to pay for day-to-day spending via tax receipts by £57.1bn. She is also set to fall £24.9bn short of her aim to reduce net financial debt as a share of GDP, according to the thinktank.

Mr Caswell said this would force Ms Reeves to cut spending or raise taxes if she wants to stick to the “iron clad” rules she created last year.

He suggested the Chancellor could reverse tax cuts made by her predecessor, Jeremy Hunt. The economist said two cuts to National Insurance contributions amounting to £10.7bn each until 2028-29 would “make a reasonable dent” in the deficit.

The analysis comes as the Bank of England is poised to cut interest rates amid an escalating global trade war and a worsening outlook on economic growth.

Most economists think UK interest rates will be reduced to 4.25% from their current level of 4.5% on Thursday (May 8).

Analysts said some members of the central bank’s Monetary Policy Committee (MPC) could push for a larger 0.5 percentage point cut in a bid to reduce borrowing costs further and ease pressure on households and businesses.

Mr Caswell said Threadneedle Street will only be able to make limited interest rate cuts because inflation is increasing as a result of Ms Reeves’ actions, including higher employers’ National Insurance contributions and raising of the minimum wage.

Some economists have warned UK economic growth could slow sharply over the next two years because of Mr Trump’s plans, which will directly impact British exporters, but could also weaken household and business spending.

However, Mr Trump is expected on Thursday to announce the US has reached a “major trade deal” with a “highly respected country”, widely understood to mean the UK.

A Treasury spokesman said: “This government’s commitment to meeting our fiscal rules is iron clad. We saw what happens when governments play fast and loose with the public finances – it’s working people who pay the price.

“We delivered a once in a Parliament budget to fix the public finances and rebuild the NHS, with 2m additional appointments and waiting lists falling five months in a row, whilst protecting working people’s payslips from tax rises.

“Now we’re going further and faster for growth, delivering our number one mission to put more money in working people’s pockets through our Plan for Change.”