UK-EU: Getting Back on the (Political) Fence
That the UK has seemingly cobbled together a third trade deal in just over a fortnight is of course more of political importance than economic. The deal to be detailed later today with the EU will help both sides economy wise but only at the margin – the main factor for the UK being an open-ended veterinary deal that will remove much red tape for (hitherto damaged post Brexit) UK agricultural exports to its biggest market. But there is plenty in it for the EU too, not least a security and defence partnership, that may even allow the UK access to the EUR 150 bln defense spending EU fund. But while this deal moves the UK somewhat closer back to the EU, PM Starmer also seems keen to (appear to) sit on the geopolitical fence by limiting the initiatives with the EU, so that the UK is likely to remain a political island between a Trump U.S. and Europe.
Possibly, the EU recognises, if not welcomes this, as any bridge that it can find toward an unreliable U.S. is worth taking. Regardless, this EU-UK summit, the first since Brexit took effect in 2020, has been designed to regain some economic losses caused by Brexit in so-called “reset” talks. But especially with issues over youth mobility still to be finalised, this is very much like the recent ‘trade deal’ with the U.S. - ie the start if negotiating process not the end. It may also reflect genuine efforts and desires by the likes of the German Chancellor for the UK to be brought back more into the EU fold, but the UK will not be willing to go too far down this road given the pressures domestically not to ‘dilute’ Brexit.
In this regard, it is notable that even amid the widely accepted damage that Brexit has caused the UK (likely to hit some 3-4 ppt of GDP by the end of the decade) the UK is still framing this as improving the deal not reforming it. May be that is true as the EU remains keen to leave the suggestion open that in leaving the EU, the UK lost out and that any change in trade agreements a reflection of the UK having moved ground. But even the UK admit the economic benefits will be marginal; an estimated £ 10 bln by 2040 equates to a cumulative rebound in activity of 0.3 ppt and that over a period twice as long as that causing the damage alluded to above!