I would disagree on British Troops 'borrowing' M16s from US troops. This is actually quite illegal in some cases. However, I think those deployed to US zones are sometimes given weapons and ammo because they have to work under US supply lines.
As far as a replacement rifle, we are looking at either the FN2000 or the G36K. Personally, I dislike both. I would much prefere the Steyer AUG varients to be in use with the British Army.