Reeves in Washington under heavy pressure to secure US-UK trade deal
“We’re not going to rush a deal. We want to get the right deal that’s in our national interest,” insisted Chancellor Rachel Reeves this evening as she arrived in Washington, amid bleak new economic data that piles further pressure on her to secure a favourable trade negotiation with the US.
Reeves is being hosted in the American capital this week, alongside global finance ministers, by the International Monetary Fund (IMF). There, she will meet Scott Bessent, the US Treasury Secretary, and she will be pulling out all the stops to negotiate away some of the Trump administration's most bruising tariffs on Britain.
UK officials are not expecting a carve-out from the baseline 10 percent tariffs slapped on British goods any time soon. But they are said to be hopeful that a deal on AI could persuade Washington to lift the worst of its tariffs: the 25 per cent import tax it has whacked on all steel, aluminium and cars coming from Britain. The UK is also hoping to avoid a pending US tax on pharmaceuticals.
There are some encouraging noises coming from across the Atlantic: last week, US President JD Vance said there was a “good chance” that a “great” trade deal could be reached between London and Washington.
However, hopes of an early agreement were dashed somewhat today by a leaked document, setting out new US demands. The text, which first appeared in the Wall Street Journal, has reportedly dismayed UK officials by including calls for concessions in a series of new areas, including a demand for the government to drop its standards on agricultural products, including beef.
British carmakers are on tenterhooks. The UK exports more cars to the US than any other country, and, earlier today, representatives from Britain’s auto industry warned that the impact of Trump’s 25 per cent tariff has been “severe, significant and immediate”. Job lay-offs at companies such as Rolls Royce, Bentley and Aston Martin are now weeks away, Mike Hawes, chief of the Society of Motor Manufacturers and Traders lobby group, told a Westminster committee.
To make matters worse, the IMF summit is getting underway a day after the Washington-based lender slashed Britain’s growth forecast for 2025 and 2026: it now expects the UK economy to grow by just 1.1 per cent this year and 1.4 per cent in 2026, down from 1.6 per cent and 1.5 per cent just three months ago.
It’s not just Britain that has been downgraded: the IMF warned that Trump’s chaotic trade policy has unleashed a “major negative shock” into the world economy, as it revised its forecast for global GDP growth to 2.8% for this year – 0.5% weaker than it was expecting in January - and cut its US growth forecast even more dramatically: from 2.7 to 1.8%.
Global debt, it added, could reach 100 per cent of GDP by 2030, and, in a “severe scenario”, could hit 117 per cent of GDP in two years.
Speaking of debt, new data on higher-than-expected UK government borrowing dealt another setback to Britain’s chancellor as she boarded a plane today.
According to the ONS, the government borrowed £151.9 billion in the financial year to March. That’s up by £20.7 billion compared to the same 12-month period a year earlier and, crucially, it’s £14.6 billion higher than the OBR had forecast for this fiscal year even as recently as the March Spring Statement.
In her Spring Statement, Reeves made painful and politically costly cuts to public spending and disability benefits in order to restore the degree of headroom for meeting her fiscal targets to exactly the level she had pencilled in to last October’s Budget: £9.9 billion.
But, as Ian Stewart rightly warned in Reaction at the time, in an economy where GDP runs at almost £3tn and government spending is around £1.35tn, a cushion of £9.9bn is hardly even a rounding error, and liable to be demolished by adverse shocks.
How will Reeves square the circle now?
Brace for further tax rises in the Autumn budget, warn many economists today.
This gloomy fiscal picture could create temptation too for the chancellor to look to strengthen economic ties with China. Though that could backfire, and put a trade deal with Washington in jeopardy. After all, Trump is attempting to use bilateral tariff negotiations to, amongst other things, pile pressure on allies to curb trade with Beijing.
Caitlin Allen
Deputy Editor
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