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 Britain was hit with the 10 percent “base line” tariffs that Mr. Trump imposed on America’s trading partners.
Britain is also subject to 25 percent tariffs on cars and steel, and its leaders are 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.
It 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 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 it would lift the overall British economy. Although the United States is an important trading partner, trade flows are heavily skewed toward services, which were not affected by higher tariffs. Britain exported £137 billion worth of services to the United States last year.
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 and the United States have been in trade negotiations for five years, it’s unlikely that the current deal will be a full-blown free-trade agreement that lowers tariffs across a wide range of goods and increases access to many services, like the pact 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 trade uncertainty is also weighing on the Bank of England, which cut interest rates a quarter point to 4.25 percent on Thursday.
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, which is expected to dampen business investment and consumer spending. 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.
Britain is vulnerable to external shocks, and its economy would suffer if others, such as the European Union and the United States, fell into recession.
“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. It 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 outlook means the government could be faced with raising taxes or cutting public spending this year.
“Tariffs have engendered a lot of uncertainty, but I don’t think that should take the government off the hook,” Mr. Caswell said.
