The UK economy is set to slow sharply for the next two years as Donald Trump’s global tariff war weighs on consumer spending and business investment, a study by a leading forecaster has predicted.

The findings by EY Item Club, which is sponsored by the big four accountancy firm EY, come as a separate survey reported that confidence in Britain’s economy has fallen to the lowest level on record.

The latest poll by Ipsos Mori, which has been tracking net economic optimism in Britain since 1978, found that three-quarters of Britons expect the economy to get worse over the next year. Just 7% of Britons think the economy will improve, while 13% thought it would stay the same, equating to a net score of -68.

EY’s forecast said it now expects UK gross domestic product (GDP) to grow by 0.8% this year, down from a projection of 1% in February, and has cut its 2026 forecast from 1.6% to 0.9% as longer-term effects hit the UK.

Last week, the International Monetary Fund (IMF) downgraded its growth forecast for the UK this year to 1.1%, from the 1.6% it had been forecasting as recently as January, while the governor of the Bank of England, Andrew Bailey, said the UK faced a “growth shock” from Trump’s trade policies.

About 16% of UK goods exports go to the US – where there is a “baseline” 10% import tariff for most countries and 25% for cars, steel and aluminium – which will directly affect growth by driving down demand for UK products.

However, EY Item Club said that the bigger hit is likely to come from the indirect impact of the new policies weighing on British consumers already cautious about committing to spending on bigger ticket items. Businesses are also likely to limit the amount they invest over the next two years as a result.

Research indicates British businesses are reacting to potential supply chain disruption from tariffs by targeting new export markets in Asia, Africa and Australia.

Expanding or exporting overseas is a top priority for almost a third of mid-size UK businesses over the next year, a survey of 500 businesses by advisory and accountancy firm BDO found.

Overall, almost 40% of firms polled expect to increase exports over the next year, rising to more than half of businesses in the retail, wholesale and tech sectors.

More than one-third of those hoping to boost their international sales are aiming for growth in Africa, while 38% intend to increase sales to Australia, and 30% focusing on Asian growth.

British exporters are expected to put new focus on EU states, with 41% of UK mid-sized businesses aiming to boost sales to member nations.

“Although conditions remain challenging, the UK’s mid-sized businesses are highly ambitious and have their sights firmly set on driving growth,” said Richard Austin, a partner at BDO. “Generating £130bn in revenue from overseas trade alone last year, these businesses are the strongest engine for our economy.”

It emerged last week that Apple is reportedly planning to switch assembly of all iPhones for the US market to India, as the company seeks to reduce its reliance on a Chinese manufacturing base amid Trump’s trade war.