In the fourth quarter of 2024, Britain was the best-performing European economy, while Germany, France, and Italy experienced shrinking or stagnant growth. Unexpectedly, December’s growth reflected a robust performance by Britain’s services sector, with wholesalers, film distributors, pubs and bars, machinery manufacturers, and pharmaceutical companies doing well, according to the Office for National Statistics. But this year, the UK economy has had a slow start.

A Sluggish start.

This year, the UK economy was driven by weak external growth and global uncertainty. The looming threat of a global trade war has slashed hopes for a surge in growth in 2025.

At the IMF’s spring gathering last month, the fund announced that the UK economy would grow less than previously predicted, up 1.1% in 2025 instead of 1.6%, because of the global fallout from US trade tariffs.

The figure does not consider the 90-day pause later proposed by US President Donald Trump. Notwithstanding that Britain and the USA have almost balanced trade when it comes to the exchange of goods, Donald Trump hit the UK with tariffs of 10% on exports to the US. This could be negative for UK exports as well as the economy.

UK-US ongoing negotiations.

Indeed, negotiations are underway, and the UK government hopes to strike a good package deal based on its excellent relations with the US and the apparent good connection between Trump and Starmer, the British Prime Minister.

Rachel Reeves, Chancellor of the Exchequer, traveled to Washington to talk to US officials, including meeting her counterpart, Scott Bessent, for the first time.

The proposed US-UK trade deal seems ready for President Trump’s signature. But there is still a lot of lobbying on the UK side to convince Donald Trump’s administration to reduce tariffs on UK steel, cars, and aluminium. There is also uncertainty about whether Trump will put tariffs on pharmaceutical products. In any case, the British government seems ready to finalise this deal as soon as possible, which will benefit the UK economy.

Just before her trip to Washington, D.C., Reeves declared, “We need a world economy that provides stability and fairness for businesses wanting to invest and trade, more trade and global partnerships between nations with shared interests, and security for working people who want to get on with their lives.”

The upcoming UK-EU summit.

Another positive economic hint for Keir Starmer’s government is the upcoming first EU-UK summit on May 19th.  

There is some progress on the bilateral talks ahead of this summit. The broader importance of the EU-UK relationship to Europe makes this dialogue very constructive, even if nothing should be taken for granted. Some of the key aspects the British PM wants to achieve here are around three topics: the youth mobility scheme, a sanitary and phytosanitary deal related to food and drink exports to the EU and entering Northern Ireland from Great Britain, and finally, a carbon emissions deal. And a UK commitment on fishing rights is also expected to be thoroughly discussed. Another focus during this summit will be the possible deal on defence and security. Insiders are suggesting that the discussions are friendly and going well so far.

This is why Rachel Reeves said,” Britain’s trade ties with the EU are even more critical than with the US,” and she added, “The UK deal with the EU will not return to arguments of the past. “

While disappointing, the outlook may not be as bleak as it first appears. The UK-USA deal could have a positive impact on the UK economy, as well as the upcoming EU-UK talks. But we should not minimise the actions taken by the British government to boost trade and the economy, and that includes increased consumer and government spending that should help the UK economy later this year. Altogether, the economy, beyond the IMF growth review, should not be as bad as predicted. In fact, there are some positive perspectives ahead. But it all depends, in the end, on the international situation, global politics, and economic trends.

Sources: The Guardian UK – House of Lords Library – Reuters – RSM (consulting Sce) – IMF – UK Trade and Business Commission – BBC – European Commission – Financial Times –