Trade pacts with US, EU, India may not boost short-term UK growth: S&P
The United Kingdom's trade agreements with the United States, the European Union (EU) and India will do little to boost economic growth in the short term as they are either too narrow, or, in the case of the UK-US trade deal, still leave exporters worse off than before, according to S&P Global Ratings.
The US-UK agreement has not yet been implemented in full. When this will happen, and exactly what shape the agreement will take, are still uncertain. In addition, the agreement still leaves tariffs higher than they were before, at 10 per cent for most products, it noted.
The UK's trade pacts with the US, the EU and India will do little to boost short-term growth as they are either too narrow, or, in the case of the UK-US one, still leave exporters worse off than before, S&P Global Ratings said. The US-UK pact has not yet been fully implemented; the UK-EU one is narrow in scope; and the UK-India one is smaller in terms of economic significance than the UK-EU deal.
'Even if the UK is slightly better off in terms of trade with the US than other countries, UK-US trade will still be lower than it would have been under the tariffs before April 2, 2025,' S&P Global Ratings said.
The UK-EU agreement is narrow in scope, even if it suggests that the United Kingdom may have put Brexit aside in favour of cooperation.
Finally, the country's trade agreement with India will give British exporters more options as they seek to diversify their trading partners. However, even if India is a fast-growing market, the UK-India trade deal is smaller in terms of economic significance than the UK's narrow deal with the EU, according to British Treasury estimate, i.e., £4.8 billion versus £9.0 billion in the long run.
India is a smaller trading partner, buying only around 2 per cent of total UK goods exports in the past 12 months, compared with around 64 per cent for the EU and United States combined, S&P Global noted.
The UK economy is weaker than it looks from the first quarter (Q1 2025) statistics and has shed 280,000 jobs in the past 12 months, it observed.
Surveys point to subdued demand, especially in manufacturing, and consumers continue to save much more than they have historically.
The Bank of England (BoE) will continue to take a gradual approach to cutting rates, as volatile economic data continue to point to elevated price pressures even though the labour market is cooling down. S&P Global expects one rate cut per quarter until February 2026, which should help investment and consumption rebound more quickly.
The country's economy expanded by 0.7 per cent quarter on quarter in Q1 2025.
Consumers have continued to lower their expectations for the economy. This is likely to be motivating higher savings than usual, preventing a stronger recovery in household spending.
Retail sales dropped by 2.6 per cent in May 2025, reversing earlier yearly gains.
The UK gross domestic product is likely to contract in the second quarter, reflecting the subdued trends and a drop-off in trade with the United States, as the new tariffs have now kicked in. Exports to the United States were already 31 per cent down month on month in April this year.
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