Sir Keir Starmer and Donald Trump have agreed “productive negotiations” about an economic deal between the UK and US will “continue at pace”, Downing Street has said, ahead of a looming deadline on US tariffs.
The Sunday night phone call between the pair comes after sources at No 10 said the government was prepared to retaliate against US trade taxes if needed.
British negotiators are trying to win a last-minute exemption ahead of Trump’s 25% levy on car imports, which is expected to come in on Wednesday.
Trump has imposed a series of tariffs targeting goods from other countries in the first few months of his second term in the White House, with threats of wider taxes also being imposed.
The prime minister has previously said he does not want to jump into a trade war with the US. But Sir Keir has also said the UK “reserves the right” to introduce reciprocal tariffs on the US if a deal to exempt the UK cannot be reached.
The government has argued the UK has a relatively equal trading relationship with the US, compared to its other partners.
The independent Office for Budget Responsibility (OBR) has warned a reciprocal trade war would wipe billions off economic growth and all but eliminate the headroom Chancellor Rachel Reeves has to stay within her self-imposed fiscal rules.
The OBR’s latest economic forecast, published on Wednesday, said GDP would be 0.6% lower than forecast this year and 1% lower next year in the most “severe” scenario, in which the UK and other nations retaliated to Trump’s tariffs.
This scenario would “almost entirely eliminate” Reeves’ £9.9 billion headroom against her fiscal rules, which could lead her to implement tax rises or further spending cuts if she wanted to stay within them.
In an alternative scenario where the UK does not retaliate, the OBR has forecast a smaller reduction in growth, with GDP 0.4% lower than expected this year and 0.6% lower next year.
It is unclear how the UK would retaliate if tariffs do come into effect. There are a range of options available, from duties on sectors where British products are particularly important to the US, to focusing on specific products like Harley Davidson motorcycles.
UK car exports are worth about £7.6bn per year, and the US is the second largest market for UK cars after the European Union, according to car industry body the Society of Motor Manufacturers and Traders (SMMT).
Trump’s plan is expected a to hit British luxury car makers such as Rolls-Royce and Aston Martin.
The US president argues his measures will help American manufacturers and protect jobs, despite warnings prices could go up for consumers.
Earlier on Sunday, Trump said that he “couldn’t care less” if carmakers raise prices as it meant “people are gonna buy American-made cars”.
During a meeting between the prime minister and president at the White House last month, Trump hinted at “a real trade deal”, which could see the UK avoid the kind of tariffs he has been threatening other countries with.
Also in their call on Sunday, the two leaders discussed continuing to pressure Russia over the Ukraine war, Downing Street’s spokesperson said.
“Discussing Ukraine, the prime minister updated the president on the productive discussions at the meeting of the Coalition of Willing in Paris this week,” they said.
“The leaders agreed on the need to keep up the collective pressure on Putin.”
