US-UK trade deal provides limited relief for lacklustre British economy

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London-listed stocks experienced a slight increase on Friday, fueled by optimism surrounding the newly established US-UK trade agreement and the Bank of England’s recent interest rate reduction. The stock market reacted positively, though analysts caution that the agreement’s scope and existing US tariffs on other major economies will continue to pose significant challenges for the UK’s open trading system.

Cautious Optimism in the Markets

The FTSE 100 climbed by 0.4 percent in late afternoon trading, while the FTSE 250 saw a rise of 0.3 percent.

Bowmore Wealth Group reports that approximately 280 companies listed on the London stock exchange have issued warnings about risks associated with tariffs since the announcement made on April 2.

British exporters in key sectors like automotive, aluminum and steel, and aerospace are set to benefit from the current terms of the agreement.

However, specific details remain scarce regarding the implications for critical industries such as pharmaceuticals, especially with a blanket 10 percent duty in effect.

Lale Akoner, a global market analyst at eToro, mentioned that companies like Jaguar Land Rover, Bentley, and McLaren could “breathe easier” due to the reduction of tariffs on their exports to the US from as high as 27.5 percent to a flat 10 percent on nearly all current sales volumes.

Akoner also noted, “Not everyone is celebrating. UK food and beverage exporters still face 10 percent tariffs, and local agricultural producers are concerned about a potential influx of subsidized US ethanol and beef.”

“The overall economic impact will be modest, but precise details are very important on particular parts of the stock market, especially in capital-intensive industries.”

Limited Impact on the Economy

The Bank of England acted on Thursday to ease strain on economic output with a decrease in the base interest rate from 4.5 percent to 4.25 percent.

The institution projects that global commerce tensions and country-specific tariffs will reduce the UK’s financial expansion by 0.3 percentage points this year, although they point out that predicting future effects is hard.

Despite better-than-expected GDP growth of 0.5 percent in February, fueled by a surprising surge in manufacturing, the Office for Budget Responsibility forecasts overall growth of only 1 percent for the UK economy this year.

Andrew Bailey, Governor of the Bank of England, stated on Friday that the global financial landscape “is likely to remain challenging and less predictable than in previous years.”

The bank is anticipated to lower interest rates to as low as 3.5 percent by March of the coming year to stimulate economic activity.

Thomas Pugh, an economist at RSM UK, suggested that if the US-UK agreement “develops into a sequence of US trade agreements” leading to a “decrease in uncertainty and adverse effects of US tariffs,” there may be grounds for enhanced optimism.

“However, at this time, we are not changing from our projection of just 1 percent [UK GDP] growth for this year,” he added.

Analysts at ING expressed doubt in a Friday note, stating they are “skeptical that London´s deal will lead to major U.S. trade modifications.”

It said: “The UK could not fully get rid of the standard ten percent tariff that is applied across the board.”

“Our expectations show this remaining here, for all nations, throughout the term of office of Donald Trump.”