Sarah Hall explains the challenges of achieving measurable economic growth through trade deals and why they are not included in the OBR’s forecasts using the example of the UK-India FTA.
With the UK economy still struggling to generate sustainable economic growth, Chancellor Rachel Reeves is widely reported be excited about the Office for Budget Responsibility (OBR) “rating” trade deals in terms of the growth they generate. She hopes that if the OBR improves its forecast for UK growth by including trade deals, it will be less likely to need to resort to tax rises, as this would signal a likely fall in the UK’s budget deficit.
She is particularly keen to see the recent UK-India Free Trade Agreement (FTA) included, alongside the UK-EU Reset and the Economic Prosperity Deal with the US. However, the case of the UK-India FTA demonstrates that concluding an FTA is not a panacea for economic stagnation, its value being a function of how it is implemented – and in this area there is still much to be done.
But first, the positives. One of the most successful policy areas of the current government is the speed and scale with which it has concluded new trade deals, and in this respect the deal with India, finalized in July 2025, is particularly impressive. It is the largest and most economically impactful bilateral trade deal the UK has finalized since Brexit. India is widely recognized as a formidable trading partner that continues to adopt protectionist approaches in many trade policies. In this context, the UK was unlikely to reach a deal with India, having launched negotiations in January 2022.
But as both countries sought to reduce their exposure to the United States following the tariff policy introduced by the Trump administration, negotiations gained new momentum in 2025 and a deal was reached. The agreement reduces tariffs on 90% of trade in goods, including whiskey, automobiles and medical devices, in a bid to increase bilateral trade. The agreement was widely welcomed by professional groups, particularly in the manufacturing sector. The government estimates this will increase UK GDP by 0.13%, or £4.8 billion, in the long term.
However, there are two significant obstacles to achieving the expected economic impact: one concerns ensuring full implementation and use, and the other concerns the coverage of the agreement. These obstacles explain the OBR’s caution so far in including trade deals in its assessments of the UK’s fiscal situation.
Starting with implementation and usage, in order to fully achieve their results, businesses need to be able to take advantage of all aspects of the UK-India deal, which is not always easy. For example, the automotive sector has been widely identified as one that would benefit from the agreement when it comes into force. The agreement reduces prices from 110% to 10% gradually, eventually including electric and hybrid vehicles. However, rules of origin requirements which stipulate the proportion of different types of vehicles that must be manufactured and assembled in the UK are more rigorous than in other similar FTAs concluded by the United Kingdom, in particular for vehicles other than passenger cars. The importance of this agreement will only be known when companies start using this agreement.
When it comes to coverage, this is the most significant limitation associated with the agreement, as it does very little for the services. Lack of services coverage is common in FTAs, but the UK-India deal does not go as far in liberalizing trade in services as some other recent UK FTAs. Given the high growth rates and size of the Indian market, alongside the dominance of services in the British economythis constitutes a significant constraint on the economic benefits of the agreement.
Simply put, the deal “locks in” current access for UK services to the Indian market. This includes supporting digital trade, for example by recognizing the validity of contracts and electronic signatures which can be used to reduce trade costs. It also makes commitments regarding the temporary movement of professionals to provide services, including professional visitors and intra-company transferees. However, the ability to use these mobility clauses may be limited by how India will retain certain licensing requirements, particularly in the IT sector. And when it comes to digital commerce, there is no commitment to supporting cross-border data flows and data localization requirements that are equally important in financial services in particular.
Yet even these limited boosts to trade in services are far from guaranteed. Some important aspects of the services agreement are still subject to further negotiations, while other services provisions are not binding and are rather general in nature. For example, the agreement sets out a framework for the future mutual recognition of professional qualifications, but this is notoriously difficult to conclude and any progress is likely to take a long time. Similarly, on innovation, the agreement establishes a framework for cooperation on issues such as R&D, but this is not supported by binding commitments. As a result, professional bodies representing services, particularly legal services, have expressed their disappointment with agreement.
Trade deals are difficult to come by, particularly with India, and it is no surprise that the Government wants to make the most of the UK-India deal in the upcoming OBR Economic and Fiscal Outlook. But pleasing the OBR should not distract from the hard but important work needed to ensure that the full value of the UK-India trade deal, including in areas where binding commitments have not been made on services, is realised. Focusing on the full implementation and use of the UK-India trade deal should therefore be seen as an important practical step in delivering much-needed growth to the UK economy.
By Professor Sarah Hall, Professor of Geography at the University of Cambridge.
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