The UK stock market reaction to the US-UK trade deal, announced on Thursday, was mixed, with some clear winners such as aerospace firms Melrose Industries MRO and Rolls-Royce RR on the day. On Friday many of these stocks were largely unchanged.
Details of the deal emerged on Thursday afternoon, with tariffs cut or removed completely for some UK exports such as cars, steel and aluminum. There were also promises made by President Donald Trump on “preferential treatment” on pharmaceuticals in the future.
Rolls-Royce was the obvious beneficiary as Howard Lutnick, the US commerce secretary, specified that the company’s engines and plane parts will now be able to be exported from the UK to the US tariff-free.
The company’s shares, despite a wobble in early April as global markets sold off, are up nearly 35% this year, but are still considered undervalued according to Morningstar estimates. The UK listed company focuses purely on aerospace manufacturing, but the famed luxury car brand is owned by German car firm BMW BMW, whose shares are up around 5% in the last five days.
Shares in fellow aerospace firm Melrose, the parent company of GKN Aerospace, are up 7% over five days at 470p. But they are still significantly below Morningstar’s fair value estimate of 800p.
While Melrose shares rose 1% on Friday, the after the deal was announced, UK stocks showed a muted reaction to the news.
Philippe Waechter, chief economist at Ostrum Asset Management, says that the deal is weighted towards the US and that the UK doesn’t have a huge amount to celebrate.
“While no specific details are given, the agreement provides for greater access to American industrial products on British soil.
“The tariff rate is higher for British manufacturers than before Trump’s arrival. Therefore, it represents a cost for the British economy.
“Nevertheless, the deal gives them a comparative advantage over competitors who have not yet reached an agreement, particularly the Europeans.”
Key Morningstar Metrics for Rolls-Royce Holdings RR.
Analyst: Loredana Muharremi
• Morningstar Rating: ★★★★
• Fair value estimate: GBX 960.00
• Economic Moat: Narrow
• Sector: Industrials
• Forward Dividend Yield: 0.78%
UK car exports to the US will be cut to 10%, from 25% previously, but this was capped at a maximum of 100,000 cars. The previous 25% tariff on UK steel and aluminum goods was scrapped.
One of the UK companies most affected by these tariff changes will be Jaguar Land Rover (JLR), a maker of high-end vehicles and SUVs which are exported globally to markets such as the US. As the company is owned by Indian conglomerate Tata and not listed on the UK stock market, the investor reaction was hard to gauge. Shares in Aston Martin Lagonda AML, the largest listed UK car stock and maker of luxury vehicles, rose sharply on Thursday and have gained 10% over five days.
The Prime Minister, Sir Keir Starmer, said at JLR’s car plant in Solihull on Thursday: “This historic deal delivers for British business and British workers protecting thousands of British jobs in key sectors including car manufacturing and steel.”
How Will the Trade Deal Impact European Automotive Stocks?
Morningstar equity analyst Rella Suskin said that the deal doesn’t move the needle for UK carmakers: “UK carmakers have a minimal presence in the US … and they accepted a deal that minimized the risk of needing to restructure or downscale over the short term (or survive) at the cost of limiting future upside potential.”
“The UK automakers have a very small share of the US market – their current share is now somewhat protected with the tariff adjustment. If they want to gain share, it will be on similar terms as the Europeans (higher tariffs), thus the status quo is maintained.”
European automotive stocks were among the biggest gainers on Thursday, with Stellantis SLTAM gaining nearly 5%. Ruskin dismissed the idea that these gains were down to investors hoping for similar preferential terms for European carmakers, whose shares have been impacted by the tariffs.
“In my view, the impact of the UK deal on the European automakers is negligible,” she said, adding that the implications for the industry need to assessed on a company-by-company basis.
What Have the UK’s Largest Companies Said About Tariffs?
The most recent earnings season focused on the impact of the tariffs on company profitability and the outlook for the rest of the year. Many global companies have pulled full-year forecasts for the full financial year, such as ARM Holdings.
Before the trade deal was announced on May 9, investors were already given insights into how the UK’s largest companies were thinking about how to manage tariff risks.
Consumer goods giant Unilever ULVR said that tariff impacts on the firm’s profitability is expected to be “limited and manageable.”
A Unilever spokesperson added: “We are conscious that the macroeconomic environment, currency stability and consumer sentiment remain uncertain, and we will be agile in adjusting our plans as necessary.”
Asia-focused bank HSBC HSBA anticipates a $200 million increase in expected credit losses to $900 million in the first quarter, reflecting “heightened uncertainty and deterioration in the forward economic outlook due to geopolitical tensions and higher trade tariffs.”
HSBC said: “A further escalation of tariffs and trade tensions could lead to lower trade volumes, investment, consumer spending and, ultimately, weaker global GDP growth. Supply chains could also come under renewed pressure from a fragmented trade landscape, which could cause inflation to rise again.”
Paul Soriot, chief executive of AstraZeneca AZN, the UK’s largest company, said that the firm’s strong growth momentum has continued in 2025.
He also alluded to AstraZeneca’s plan of shifting some of its manufacturing capability, countering the worst impact‘s of President Donald Trump’s trade tariffs.
Rival company GSK GSK said that the company is well equipped to deal with any tariffs that President Donald Trump may put on pharmaceuticals. This was before the trade deal was announced.
On a media call CEO Emma Walmsley: “As far as tariffs are concerned, we start from a position of strength. Obviously there’s still some fluidity here. We’re watching it very carefully, but we are well prepared and have been working on that for some time to navigate and mitigate with several levers at our disposal.”
The company is also looking to use artificial intelligence to help it save money and protect it from the worst effects of tariffs, for instance using technology to improve procurement, and AI to help find inefficient practices.
James Gard contributed to this story
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
