The United States has agreed a trade deal with the UK – with tariffs on some car imports having been cut to 10% – but hopes tariffs would be lifted on most British goods imported to the US have been dashed.
Currently, most goods imported to the US from the UK face 10% tariffs, with higher rates on steel, aluminium, and cars. The UK also charges tariffs on some US goods.
Prime minister Keir Starmer today said he would continue to negotiate for their removal – that this deal was for “jobs saved, not job done”, referring to jobs saved in the car manufacturing sector.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Cars are the UK’s biggest export to the US, worth about £9 billion last year. President Trump had placed import taxes of 27.5% on UK cars and car parts coming into the US.
It has now been agreed that the UK will be able to send 100,000 cars into the US on the original 10% baseline tariff. This will include almost all of British car exports to the United States.
Rolls Royce engines and parts for aeroplanes can be exported from the UK to the US tariff free, he said.
The US has also removed tariffs on UK steel and aluminium down to 0%. A 25% tariff had been in place.
The UK is the first country to reach a pact with the US since Trump announced his "Liberation Day" tariffs, in what has been described by Trump as a "major trade deal".
Prime minister Keir Starmer said UK pharmaceuticals, the second biggest export to the US, worth £6.5 billion last year, will also get “preferential treatment” as part of the deal.
Trump has not announced any trade restrictions on medicines yet. However, there is an expectation he will in the coming weeks.
In return, the UK government says it's removing the tariff on ethanol for US goods, and agrees "reciprocal market access on beef".
Both the prime minister and chancellor Rachel Reeves have been clear food standards will not feature in this deal for domestic political reasons.
Earlier today Bank of England governor Andrew Bailey congratulated policymakers in the US and the UK for reaching a trade deal in his statement on interest rates.
He said he hoped the agreement would be the “first of many” and that it would be “good news all round” including for the UK economy.
The Bank’s Monetary Policy Committee cut interest rates by 0.25 percentage points to 4.25%.
Laith Khalaf, head of investment analysis at AJ Bell, says: “Trump’s tariffs have fed directly into this interest rate cut by pushing down energy prices, which has lowered the UK’s inflation forecast.”
The Bank now expects CPI to peak at 3.5% later this year, down from its previous forecast of 3.75%.
UK mid and small caps missed out in trade deal
Analysts at fund research firm Stifel had said the removal of 10% reciprocal tariffs would have given UK exporters a boost in their revenues.
This would likely have benefited UK small and mid cap stocks, and improved investor sentiment towards the UK economy.
“Whilst large FTSE 100 companies tend to have sprawling businesses with lots of moving parts and many factors influencing their share prices, we think many UK mid- and small caps have more focused businesses, and those with significant exports to the USA stand to benefit from the clarity provided by a trade deal,” the analysts said in a note, prior to a deal being announced.
However with 10% tariffs on US imports of UK goods still in place, most UK small and medium sized businesses won’t be any better off after today’s announcement.
Prime minister Keir Starmer said he would continue negotiating to try to get tariffs down to zero.
Uncertainty remains about effect of trade wars on UK economy
Now the framework of a trade deal with the US has been announced, this should alleviate some unpredictability at least for businesses in the UK steel, aluminium, and car sectors.
But Susannah Streeter, head of money and markets at Hargreaves Lansdown, said “there is still plenty of uncertainty around the global effects of trade wars on the UK economy”.
“Inflation may still be above target, but deflationary forces are at work, which could have worrisome consequences for growth and are likely to act as a dampener on price rises,” she said.
Streeter pointed out the mighty service sector has shrunk for the first time in 18 months, as the tariff turmoil knocks business confidence, clients become more risk averse and work orders are reduced.
A recession rather than stubborn inflation is the ogre to avoid right now, Streeter says.
-
How to use mid-caps to diversify from the USMedium sized companies are overlooked by investors but could offer an attractive ‘sweet spot’. We consider the case for mid-caps amid market volatility.
-
Regions lead with strongest annual house price growth – HalifaxHouse prices have remained ‘remarkably stable’ over last six months, down by just £48, according to Halifax
