The recent trade agreement between the United States and the European Union is set to weigh on the United Kingdom’s economy, despite its absence from the deal.
According to Deutsche Bank’s latest U.K. Weekly Digest, the ripple effects of the agreement are expected to contribute to a modest decline in the U.K.’s gross domestic product due to global trade interdependencies and reduced demand across key sectors.
While the EU secured a range of terms in its deal with the U.S., including a 15% universal tariff on most EU exports and a 0% rate for select goods like aircraft components and generic drugs, U.K.-based industries will feel the secondary effects.
The steel and aluminium sectors remain particularly unsettled, with 50% tariffs still in place and future arrangements unclear, creating uncertainty across related supply chains globally, including in the U.K. Deutsche Bank economists have updated their input-output model to reflect these new developments.
They now estimate that the total impact on the U.K. economy could rise to between 0.15 and 0.32 percentage points of GDP, up from a previous estimate of 0.13 to 0.25 percentage points.
The revision reflects increased external pressures, particularly from weaker demand in the EU and other major trade partners affected by U.S. tariffs.
Of the projected hit to the U.K.’s economy, domestic impacts still account for the largest share, with a 0.12 percentage point decline in GDP.
However, around 0.05 percentage points, 20% of the total impact, stems directly from the consequences of the U.S.-EU trade deal. A further 0.07 percentage point loss is tied to broader tariffs the U.S. has placed on other countries, underscoring the U.K.’s exposure to global trade disruptions.
Although the U.K. has its own agreement with the U.S., referred to in the report as the ‘Economic Prosperity Deal,’ it has not insulated the economy from global trade shifts.
The brokerage notes that reduced global demand tends to hit the U.K. harder than the EU, given its position as a smaller open economy.
In contrast, the EU faces a more concentrated domestic impact, with U.S. tariffs on EU countries alone accounting for nearly two-thirds of the total estimated GDP loss for the bloc.
The economic analysis indicates that trade agreements involving the U.K.’s major partners carry significant consequences for domestic performance.
Despite recent efforts to reduce trade fragmentation, unresolved issues in global trade, particularly in sectors like pharmaceuticals and metals, continue to inject uncertainty into the U.K.’s economic outlook.
Source: Reuters
