Is tariff uncertainty from the US expediting trade deals for other regions?Jack Loughney elaborates.

On the 6th of May, the United Kingdom and India announced a bilateral trade deal allowing free trade in a range of goods and services. India is projected to become the third largest economy before the end of the decade, according to the International Monetary Fund (IMF), and has for some time been reticent to agree to any trade deals. The new agreement, therefore, could provide great benefit to the ailing UK economy, as well as helping to solidify India’s position in the global economic pecking order.

The first graph shows India’s manufacturing & machinery production and growth, highlighting its potential as a high-growth region to 2030.

Central to the deal is an agreement that India will eliminate or significantly reduce tariffs on 90% of UK goods exports, with 85% being completely tariff free within 10 years. Simultaneously, the UK will make 99% of Indian exports to the region duty free. In terms of what qualifies, we will not know the full extent until the complete trade deal has been released. However, we do know that on the UK export side cosmetics, food & beverage, aerospace, and high value automotives will have tariffs removed or reduced, while from India, clothing, food, jewellery, and some automotive will receive similar benefits. This is potentially quite significant for both regions as India accounted for just under 1.8% and 2.3% of imports and exports from the UK respectively in 2023, while India exported 2.5% to the UK and imported 1.3% in 2022, according to International Economics.

The expectation is that this agreement will increase bilateral trade by over £25 billion ($33 billion) annually by 2040 and the UK government has said it expects that GDP and wages will increase annually by £5 billion ($7 billion) and £2 billion ($3 billion). Politico reported that UK exports to India could rise by as much as £15.7 billion, a 59% increase.

However, the deal goes beyond just tariff reductions. For instance, UK companies will be able to gain access to India’s procurement market, allowing them to bid on government contracts for goods, services and construction. In addition, plans to streamline the customs procedures should reduce trade costs and delays for British firms.

The benefits are multiple to small and medium-sized enterprises (SMEs), which make up a 99.8% of British companies (UK Gov) and employment but face disproportionate challenges when trying to enter complex foreign markets. On top of the tariff effects, the free trade agreement simplifies rules of origin, enabling more flexibility in sourcing and production. This means UK firms could potentially incorporate more non-UK inputs and still qualify for preferential access to the Indian consumer market. Additionally, the deal includes cooperation mechanisms to support SME engagement, such as dedicated government portals, improved access to regulatory guidance, and technical support initiatives.

The benefits from the trade deal could provide a path to growth for the UK manufacturing sector, which is currently forecast to struggle for the rest of the decade (illustrated in second graph).

The benefits for India are also numerous, including duty free access to the sixth largest global economy and the 5th largest consumer expenditure market (World Bank). Benefits on the labor side are strong too; employment intensive industries such as textiles and foods will get direct tariff support. Meanwhile, there is an agreement to allow easier access to the UK for Indian professionals and both regions will benefit from the waiving of national insurance contributions for the first three years a worker is in the other region.

While the trade tensions between the UK and China aren’t as front and centre as those between China and the US, the UK likely wants to derisk its supply chains. India provides a viable alternative as a supplier of components, textiles and machinery, as well as offering a large potential customer base, which is potentially more open to UK goods than China and has a comparable population size.

With tariffs falling and customs streamlined, the UK-India trade deal gives manufacturers a critical foothold in a fast-growing industrial economy. It’s a timely win that supports export growth, strengthens supply chain resilience, and futureproofs market access on both sides. While the deal is now concluded, it is not expected to come into effect until 2026. Guidance and operational support for firms on both sides of the deal will be required to reap the full benefits.

The UK-India trade deal opens the door but knowing where to step is everything. Using the deep insight available in our Manufacturing Industry Output tracker, manufacturers and component producers can pinpoint India’s fastest-growing sectors, like electronics, chemicals & pharmaceuticals, and transportation aligning their exports with real industrial demand.

The third graph shows the production value in India vs Expected 2025 growth in the MIO tracker – the largest opportunities are in the upper-right corner in terms of highest growth however most industries are positive despite the global economic difficulties.

At the same time, firms eyeing the UK market can spot openings in pharmaceuticals, textiles, and consumer goods, guided by expansive sector insight rather than guesswork. Whether you’re selling gearboxes to Gujarat or drives to Doncaster, growth is smarter when it’s targeted.

Interact Analysis’ Manufacturing Industry Output (MIO) Tracker forecasts out to 2028 and covers a total of 45 countries, across 72 manufacturing end user sectors, 30 machinery sectors and two points in the supply chain (machinery and manufacturing end-users).

Jack Loughney is a Senior Data Analyst at Interact Analysis. Jack works as the primary data analyst across multiple research activities. His expertise lies in data modelling, economic forecasting and streamlining processes to enhance product efficiency. Jack is responsible for the upkeep and enrichment of our MIO tracker.