Brexit may seem like it’s going backwards, according to recent headlines. The agreement made on 19th May has been portrayed as a step towards abandoning Brexit by some, while others see it as a surrender. However, this deal does not mean a return to the way things were before the referendum.
The new agreement, known as the ‘common understanding’, maintains certain red lines such as not rejoining the customs union and single market in its entirety, as well as ruling out freedom of movement. Despite this, there will be increased cooperation as the UK negotiates ‘selective participation’ in specific parts of the single market like agrifood and electricity. In exchange, the UK will adhere to ‘dynamic alignment’ for regulations and accept a role for the European Court of Justice.
Analysts at Bank of America predict that this agreement could boost the UK’s GDP by £9 billion by 2040. While this sounds promising, it only represents a 0.3% increase and is overshadowed by the estimated long-term cost of Brexit, which is around 4% of GDP. To make a significant impact on the UK’s growth outlook, a more comprehensive reset would be needed, potentially involving rejoining the customs union.
The UK and the EU will now hold an annual summit to discuss their relations, but true reconciliation may be challenging due to the UK’s red lines and the risk of bureaucratic complications. If negotiations become bogged down in technical details, the positive atmosphere following the May summit could quickly sour.
In terms of trade, the UK-US agreement has provided some relief for manufacturers by eliminating uncertainty. While tariffs are not ideal, the deal has helped stabilize the manufacturing industry. Services industries, which account for 80% of the UK’s total output, were never as vulnerable to tariffs on goods. Despite this, a closer relationship with major trading partners could benefit all sectors of the economy.
The recent trade agreements may not be revolutionary, but they are still significant. The UK’s move towards trade openness while other economies turn towards protectionism could make the UK a more attractive destination for investments. While these deals may not completely transform the UK’s economic prospects, they send a positive signal that could lead to an economic boost.