Britain is preparing to defy Washington and allow Huawei to supply 5G equipment, although the US is expected to mount a last-ditch campaign arguing the Chinese technology still poses a serious security risk.

Downing Street signalled on Thursday that it believed Huawei kit was necessary to ensure that the 5G mobile network was affordable. It is expected, however, to agree fresh restrictions on the company at a ministerial meeting next week.

A Downing Street source said it was not viable for the US to seek to exclude Huawei. “The market conditions are not the same in the US and UK,” the source said. “You could call it a market failure, but we are where we are.”

The implication that there are few alternative providers is not expected to placate the US, which believes that Britain is compromising security over cost. It feels there is a surveillance risk from using technology that one source said “was funded by the Chinese People’s Liberation Army”.

Steven Mnuchin, the US Treasury secretary, is due in London this weekend to give a speech on Saturday and meet his British counterpart, Sajid Javid. He is expected to raise the topic, days before the final decision.

This is due to be made by the National Security Council (NSC), chaired by Boris Johnson, and attended by senior ministers. Security and military chiefs will also be present to give advice.

Industry sources believe that the UK will formally designate Huawei a “high-risk vendor” – having previously been reluctant to do so – and place it under further supply restrictions, such as imposing a cap on its market share.

Huawei is one of three principal suppliers of 4G mobile technology, and is the leader in supplying antennas and base stations, with a 35% share. It is expected to increase that in 5G because its technology is further ahead.

Its principal rivals, Ericsson of Sweden and Nokia of Finland, are deemed to be more expensive by UK officials and leading phone companies such as Vodafone and BT, the owner of EE. Officials say that for all the US lobbying, “there is no plan B”.

Britain’s spy agencies have also long believed that any risk that Huawei technology could be compromised by the Chinese state to undertake surveillance can be contained, and their advice to ministers has been unchanged for nearly a year.

At the beginning of last week, senior US officials flew over to Britain, and argued that it would be “nothing short of madness” to use Huawei because its technology could be compromised by the Chinese government for mass surveillance.

The US said it had fresh information about Huawei. But one day later, British officials said the American warnings were nothing new. “We’d already anticipated the kind of threat,” one source said.

The officials also suggested intelligence sharing with the UK could be halted or reduced as a result, although they said that would require legislation, meaning that the threat was not immediate.

The UK will see how Donald Trump and other key officials react. Mark Esper, the US defense secretary, is due to give a speech on Friday, where he will discuss how “the United States must uphold the twin pillars of national security and national innovation”.

Of particular concern is whether the US will link Huawei to the post-Brexit trade talks that are due to begin next month. But on Thursday sources indicated the US was reluctant to do so, arguing that the Huawei decision should be taken as a security matter.

Last May, the NSC made a preliminary decision to allow Huawei to supply “non-core” equipment, such as antennas and base stations for high speed 5G networks.

Some rival suppliers say that because 5G generates greater speeds by having the network’s intelligence in base stations, rather than at the heart of the network, there can be no real distinction between core and non-core. Any supplier would have the ability to take control of the network if it so wished.

The business secretary, Andrea Leadsom, said earlier on Thursday that not using Huawei would cause problems.

“There are other providers but they are limited,” she said. “Ideally there would be more providers of infrastructure similar to the work that Huawei does, but the UK is looking very carefully at this issue and we will be making a final decision soon.”

A No 10 spokesman added the issue had not yet been finalised: “The work on the issue of high-risk vendors in the 5G network remains ongoing, and when it’s completed it will be announced to parliament.”