Stock markets in the UK and Europe tumbled again on Wednesday after the US and China ramped up tariffs on each other amid Donald Trump’s continuing trade war. The London FTSE 100 slumped 2.9% to a 13-month low, while the FTSE 250 closed 2.5% lower than it opened on Wednesday morning.

Europe’s continent-wide Stoxx 600 plummeted by more than 4%, Germany’s Dax fell 2.96% and France’s Cac 40 slumped 3.34%, after the EU agreed to slap 25% retaliatory tariffs on £18billion of US goods. The market chaos came after China raised its duties on US goods to 84% in response to the American president hiking his tariffs on the second-largest economy from 34% to 104%. Mr Trump stuck firmly to his course of action despite the global economic turmoil, taking to his Truth Social platform to call on firms to move to the US and avoid tariffs.

He said: “This is a great time to move your company into the United States of America.

“Zero tariffs, and almost immediate electrical/energy hook-ups and approvals. No environmental delays. Don’t wait, do it now!"

The market turbulence also caused turmoil with the UK Government’s spending plans, as borrowing costs hit their highest level in nearly 30 years.

Government gilts rose to 5.65% on Wednesday, a level not seen since 1998 and higher than in the fallout from Liz Truss’s mini-Budget.

The cost also surpassed the previous record high seen in January, which forced Rachel Reeves to announce major spending cuts in last week’s spring statement in order to stick to her self-imposed spending rules.

Should the cost of gilts remain high, meaning it is more expensive for the Government to borrow money, it would force the Chancellor to announce further spending cuts or tax hikes in her Budget later this year.

Chris Beauchamp, chief market analyst at IG Group, explained: “While this is nothing compared to the mini-Budget-induced surge of 2022, it certainly piles on the pressure for Rachel Reeves.

“She can legitimately point to the crisis being manufactured in the US, but that is small comfort when the UK economy may well be on its way to a recession.

“The Government will find its room for manoeuvre limited unless the Chancellor drops her fiscal rules.”

Both Sir Keir and Ms Reeves have insisted the Government will stick to its fiscal rules come what may, reducing its flexibility to deal with the economic turmoil.

Speaking on Wednesday, the Prime Minister said he did not know whether the 10% tariffs levied on British exports to the US would be in place forever.

He said: “We are negotiating and we hope to improve the situation, but what I mean by this is that simply thinking that any change in the rates or any deal is going to be enough to my mind is wrong.

“Because just as we’ve done with defence and security, where we’ve recognised it’s a changing world, we’ve got to step up and act differently.

“In that case with defence spend, co-ordinating better across Europe, so too with trade and the economy.”

He said the Government will pursue more favourable trading opportunities with countries across the world.

Also on Wednesday, the Treasury announced a £400million trade and investment agreement with India in order to boost co-operation across a range of sectors.

Hailing the deal, Ms Reeves said it was “imperative we go further and faster to kick-start economic growth. We have listened to British businesses, which is why we’re negotiating trade deals with countries across the world, including India, so we can support them and put more money in people’s pockets as part of our Plan for Change.

“Our relationship with India is longstanding and broad and I am delighted with the progress made throughout this dialogue to develop it further.”

On Tuesday night, Mr Trump sparked further anxiety as he promised he would shortly be slapping “major” tariffs on pharmaceutical imports into America.

This would be another blow for Britain following the president’s 25% tariffs on the car sector, particularly given the £8.8billion-worth of medical goods shipped across the Atlantic in 2023.