Bulletin: New trade deals with India and US
09 May 2025Featuring new trade deals, interest rates and our inflation forecasts.
New US/UK trade deal
The US and UK governments have announced a new agreement on trade.
This gives improved access to the US market for some UK products (especially cars), in return for access to the UK for US goods, especially agri-food. This includes:
Reciprocal 10% tariff in goods remains in effect in most areas
Special access to the UK market for up to US$1bn worth of US agri-food products
$700m ethanol (used in biofuel)
c.$250m other agrifood items, including up to 13,000 tonnes of beef
Reduced tariffs on up to 100,000 cars sent from the UK to the US
New bilateral trading union for steel and aluminium
The 13,000 tonnes of beef permitted special access in the agreement is a small amount in comparison to UK production.
In most recent years, UK cattle meat production has been around 900,000 tonnes.
IGD opinion
In its current form, this agreement is quite narrow as it applies to only a limited range of goods (services are the major form of trade between the two countries).
Furthermore, it does not fully-restore the trade position that existed under the previous US President. Many areas of the agreement remain unclear (e.g. treatment of UK pharmaceuticals sent to the US).
The key issue is US access to the UK market for agri-food goods – this has been a sticking point in previous trade talks between the two countries. The UK government insists that high UK production standards have not been compromised to achieve the agreement. However, it is not certain how these standards will be policed.
Still, even when US products are allowed access to the UK market, UK buyers will not be compelled to buy them. Both retailers and Away From Home operators have worked hard to build their supply chains and their reputations. They may be reluctant to risk this until the quality of US imports can be guaranteed.
UK/India trade deal
India and the UK have announced a new trade deal, which will take effect over the next ten years. Indian whisky and gin tariffs will be halved from 150% to 75% before falling to 40% by year ten of the deal.
The UK government has emphasised that the UK values, including consumer rights and labour standards, have not been compromised to reach an agreement. The trade deal won't come into force for up to a year.
IGD opinion
India is generally protective of its industries, so this liberalising deal is noteworthy. The deal has been under discussion for some time, pre-dating the last election.
India previously wanted free movement as a condition of such a deal, but this has not been included. However, Indian workers on short-term assignment to the UK will benefit from tax concessions.
UK food and drink trade with India is currently limited, accounting for about 1% of UK imports and about 1% of exports. It is worth about £1bn per year, with exports of around £280m and imports of £720m (source: UK Trade Info, averages for the last three full years).
Exports to India are mainly spirits, with imports made up of tea, spices, rice and fresh produce. Hopefully, this new deal will open up new trade opportunities for both sides.
Tariff-free access to India’s vast, rapidly urbanising population could be a win for UK businesses of all kinds. In the government press release, the Scottish Whisky Association is enthusiastic.
The deal should help to support the government’s overall economic plan. However, given that Indian food and drink products make up only a small part of UK consumption, it is not likely that UK shoppers will notice a significant price benefit due to the deal.
Inflation impacting consumers
IGD forecasts that retail food and drink prices will rise by 3.4% on average compared to 5.2% for Away From Home food and drink prices in 2025, fuelled by rising labour costs.
Financial confidence is down sharply, with only 23% expecting to be better off in the next year, the lowest since November 2023.
Over eight in ten consumers expect rising prices for food, grocery, and dining out.
These are some of the findings in our latest IGD Economic Viewpoint Report, How to respond to rising labour costs in 2025.
The report states that the food industry stands at a crossroads. Embracing automation, AI and robotics is not just a luxury but a necessity for the future.
The report explores rising labour costs and their impact on retail and Away From Home food and drink inflation, plus economic, consumer and policy insights.
Interest rates cut
The Bank of England Monetary Policy Committee (MPC) has announced a base interest rate cut, from 4.50% to 4.25%.
The MPC cites economic weakness and progress made in reducing inflation pressure as the main reasons for the decision.
Oddly, the MPC also expects CPI inflation to rise in 2025 – due to energy price changes – peaking at 3.7% before falling back.
The MPC has been careful to manage expectations around further base rate cuts, with changes to trade seen as a major risk.
A new Monetary Policy Report has also been published by the Bank, outlining the current inflation situation in the UK.
IGD opinion
The MPC is tasked with holding inflation within fixed bounds and lower inflation is a good thing as far as it concerned.
However, it should be noted that weak inflation is actually a symptom of low demand and a generally weak economy – not good news.
There are two key points in the report which will interest food and drink businesses. First, the Bank anticipates that UK wage growth will slow abruptly by year-end, with impacts on households. Second, the Bank notes the possibility that many globally-traded commodities may get cheaper, due to the trade conflict.
Both are in-line with IGD expectations.