(Illustronaut/Alamy)
5 min read
A decade on from the Brexit vote, the UK and EU are still confronted with the same fundamental trade-off between market access and autonomy, write Sam Lowe and Kathryn Watson
One of the challenges of writing about Brexit’s lingering impact on the UK economy is that, outside of a Marvel movie, it is still not possible to experience a reality that never came to pass. Every assessment therefore involves comparing the UK’s economy as it exists today with one that might have existed had the UK remained a member of the EU.
This is both standard economic modelling practice, and a source of frustration for those who argue that the economic impact of Brexit has been overstated. After all, how can anyone know with certainty what would have happened if the vote had gone the other way?
What should be less controversial, however, is that putting new trade barriers between yourself and your largest trading partner comes with economic costs, even if we can debate their scale and duration.
The question from a UK perspective is whether the additional flexibility associated with controlling its own trade and regulatory trajectory has been sufficient to offset the trade and investment costs of leaving.
On trade, the UK initially moved faster than the EU in securing new deals with Australia, New Zealand, and India, alongside accession to CPTPP. But the EU is catching up, or arguably overtaking, with the announcement of its own agreements with Australia, New Zealand, India, Indonesia and with Mercosur, the South American trade bloc.
More importantly, the economic gains associated with modern free trade agreements tend to be modest, often amounting to little more than fractions of a percentage point of additional GDP. They were always unlikely to compensate fully for the additional friction introduced into UK-EU trade.
Perhaps the clearest recent example of Brexit-related flexibility has been the UK’s approach to the United States under President Trump. Here, the UK was able to move more quickly and secure more favourable tariff treatment in several sectors, while making fewer concessions overall – although the bioethanol sector may take a different view. Unlike the EU, the UK avoided large investment pledges and purchase commitments, while also securing the first, and currently only, dedicated pharmaceutical arrangement with the US.
On regulation, the revealed preference of the UK – particularly in the context of food and manufactured goods – has been that it rather likes EU rules after all. Despite some targeted changes, for example in respect of gene editing of crops or fertiliser usage, successive governments have chosen to retain EU food safety rules and product standards in all but name.
There has been a quieter but more sustained divergence from the EU on services rules, where the UK has opted to take a more flexible, pro-innovation approach. This is most evident in areas such as AI, where the UK has so far opted for a lighter touch framework than the EU.
At the same time, proximity and economic exposure mean that EU policy decisions continue to have an outsized impact on the UK, despite Brexit. Measures such as higher EU tariffs on steel or efforts to promote a more explicit “Made in Europe” industrial agenda risk compounding some of the trade friction already created by Brexit itself.
So, what comes next?
Some degree of rapprochement with the EU was always inevitable. Recent discussions have focused on targeted measures – for example, an SPS agreement to improve agri-food trade, and linking the UK and EU emissions trading systems (ETS). Both make sense. Reducing inspections, cutting paperwork and removing irritants such as “Not for EU” labels would ease costs at the margins, while ETS linkage could help avoid unnecessary costs for carbon-intensive exporters.
But these are practical improvements, not macroeconomic game changers. They should improve trade flows in specific sectors without fundamentally changing the overall trajectory of the UK economy.
On regulation, the revealed preference of the UK – particularly in the context of food and manufactured goods – has been that it rather likes EU rules after all
The government has nonetheless signalled that it wants to go further. Rachel Reeves and others have hinted at closer alignment with EU rules in areas considered to be in the UK’s “national interest”, while legislation expected later this month would give ministers greater powers to facilitate more dynamic alignment with EU regulation.
The trade-off, however, remains fundamentally the same. The kind of frictionless trade the UK says it wants – fewer checks, smoother borders, easier market access – increasingly resembles the arrangements enjoyed by countries such as Norway or Switzerland, both of which depend on accepting shared rules and ongoing alignment. In other words, the economic benefits are difficult to separate from constraints on autonomy.
The EU, meanwhile, remains understandably cautious about opening ambitious new negotiations without clarity on what the UK is prepared to offer in return. There is also the question of durability: whether any deepening of the relationship would survive a future change of government in Westminster.
The next phase of Brexit is therefore unlikely to involve a dramatic reset. More likely, it will consist of incremental and occasionally messy trade-offs, with modest economic gains in some areas and political friction in others, gradually determining where the UK chooses to position itself between autonomy and market access.
Sam Lowe is a partner and Kathryn Watson a director, both at Flint Global