The British government made faster economic growth its No. 1 mission. But efforts to kick-start it have been repeatedly knocked off course by a global economy lurching from one crisis to another.
On Thursday, British officials appeared to secure a win: The country is set to announce some form of trade deal with the United States that will ease the impact of recent increases in U.S. tariffs.
President Trump said on social media on Thursday that the agreement with Britain “is a full and comprehensive one that will cement the relationship between the United States and the United Kingdom for many years to come.”
British officials have been negotiating in Washington for months as they sought to insulate their country from Mr. Trump’s desire to reshape the global trade order. They also wanted to protect an economy that barely avoided a recession at the end of last year and was on course for a relatively strong recovery later this year.
However, officials failed to secure exemptions last month when Mr. Trump hit Britain with the 10 percent “base line” tariffs, which were imposed on America’s trading partners.
Britain is also subject to 25 percent tariffs on cars and steel. And the country’s leaders have been concerned about threatened tariffs on pharmaceuticals and films, two important exports. Like other countries, forecasts for Britain’s economic growth have been slashed because of the trade uncertainty.
The expected deal with the United States will be welcome in Britain for a number of reasons. It’s likely to vindicate overtures that the prime minister, Keir Starmer, has made to the president (including an invitation from King Charles for a state visit) and might overshadow a setback in local elections last week.
The deal could also support certain sectors, including Britain’s auto industry, which was most at risk from high tariffs. Cars make up about 10 percent of the value of British goods exports to the United States. Many of those are luxury cars, like Jaguars, Aston Martins and Bentleys, that are made with custom details in Britain. These automakers have found it economically prohibitive to shift production to the United States and have paused shipments there.
A trade deal is also likely to lift consumer and business sentiment, which have both slumped recently.
But there are limits to how much an agreement would support the British economy as a whole. Although the United States is an important trading partner, trade flows are heavily skewed toward services, with Britain exporting £137 billion worth of services to the United States last year, which were not affected by higher tariffs.
More than 60 percent of businesses reported that they expected U.S. tariffs would have no impact in the next month, according to a recent survey by the Office for National Statistics.
Though Britain has been in trade negotiations with the United States for five years, the deal is unlikely to be a full-blown free-trade agreement that incorporates lowering tariffs across a wide range of goods and increases access to many services, like the trade agreement Britain and India signed this week. An even bigger prize for Britain would be a closer relationship with the European Union, which represents about half of British trade. Some progress on an E.U. deal is expected later this month at a summit in Britain.
The Bank of England cut interest rates on Thursday, lowering them a quarter point to 4.25 percent.
British policymakers have cautiously cut rates since last year over concerns about lingering price pressures and a short-term bump in inflation expected this year. But some had recently emphasized the risk to economic growth from trade uncertainty. Overall, policymakers were divided on this decision. Five members, a majority, voted for the quarter-point cut; two voted to hold and two voted for a larger cut.
Economists have said that the greater threat to Britain is the uncertainty that Mr. Trump’s trade policy has created globally, rather than tariffs on Britain.
As an open economy, Britain is vulnerable to external shocks. So if other major economies such as the European Union, China and the United States fall into recession, it would sap the British economy. The uncertainty is expected to weigh on business investment and consumer spending.
“The center of the U.K. story is not tariffs; it’s domestic factors,” said Benjamin Caswell, an economist at the National Institute of Economic and Social Research, which downgraded its forecast for Britain’s economic growth to 1.2 percent this year, predicting weak business confidence and higher cost pressures. Businesses are also facing higher taxes on wages, which went into effect last month and could push up inflation.
The sluggish economic outlook means the government is at risk of being forced to raise taxes or cut public spending this year. That has left businesses wondering what will happen in the fall, which could lead to less investment and hiring.
“Tariffs have engendered a lot of uncertainty, but I don’t think that should take the government off the hook,” Mr. Caswell said.
