Free trade agreement between UK and South Korea to boost exports

The UK and South Korea signed a free trade agreement in London — the UK’s fourth major deal of 2025 — that secures permanent zero‑tariff access on 98% of tariff lines, allows electronic contracts, and is intended to shield about £2bn of exports from rising tariffs. The government expects a £400m rise in UK services exports with targeted benefits for pharmaceuticals, automotive, food & drink, improved access to South Korea’s financial sector (building on £1.1bn of financial and insurance exports last year), and simpler customs and reduced non‑tariff barriers for SMEs while strengthening supply chains. Bilateral trade was £15.1bn in the four quarters to Q2 2025 (down 13.9% year‑on‑year), but with the South Korean import market forecast to grow 26% by 2035 the deal is positioned to sustain competitiveness and support jobs and growth, a development welcomed by firms such as Jaguar Land Rover, Bentley and Diageo.

Analysis

The UK and South Korea signed a free trade agreement announced in London by Trade Ministers Chris Bryant and Yeo Han-koo at Samsung KX that guarantees permanent zero‑tariff access on 98% of tariff lines and permits electronic contracts and digital trade tools. The UK government states the pact will shield about £2bn of exports from rising tariffs and is the fourth major UK trade deal in 2025 after agreements with the EU, US and India.

The deal is projected to lift UK services exports by £400m, with specific benefits cited for pharmaceuticals, automotive, and food & drink and improved access to South Korea’s financial sector, which followed £1.1bn of financial and insurance exports last year. SMEs (over 99% of UK businesses) are expected to gain from simplified customs and lower non‑tariff friction, and firms including Jaguar Land Rover, Bentley and Diageo have publicly welcomed the announcement.

Near‑term headwinds remain: total bilateral trade was £15.1bn in the four quarters to Q2 2025, down 13.9% year‑on‑year, implying the agreement may take time to materially reverse weak volumes; the longer‑term opportunity is supported by a forecast 26% growth in Korea’s import market by 2035. The FTA materially reduces tariff risk and operational frictions for exposed exporters, but investors should monitor implementation details (rules of origin, the remaining 2% of tariff lines) and early trade flow data before re‑rating equities.

Key Decisions for Investors

• Consider selective increase in exposure to UK exporters with measurable Korea revenue or supply‑chain sensitivity—consumer staples and automotive names cited (Diageo, Jaguar Land Rover, Bentley)—but size positions conservatively given the recent 13.9% decline in bilateral trade
• Monitor quarterly export volumes to South Korea, tariff implementation timelines and rules‑of‑origin enforcement; add to positions if export flows accelerate and tariff relief is confirmed
• Hedge or avoid concentrated exposure to goods that fall in the remaining 2% of tariff lines or where non‑tariff barriers persist, and watch regulatory alignment that could reopen friction
• Evaluate modest tactical overweight in UK financials/insurers if concrete market‑access measures emerge, referencing the £1.1bn baseline of financial and insurance exports