A closer relationship with the EU could boost the UK’s GDP by as much as 2.2%, according to the latest piece of research on Britain’s trade relationship with Europe.
The impact of US president Donald Trump’s tariffs could also be reduced by as much as a third if Brussels and Westminster become more aligned.
Joint research by Best for Britain and Frontier Economics found that a “deep alignment” with Europe on goods could grow UK GDP by 1-1.5%, whereas deep alignment that also includes services would push growth as high as 1.7-2.2%.
According to the Office for Budget Responsibility (OBR), Brexit hit the UK’s GDP by 4%.
Comprehensive approach
Researchers modelled what would happen if the UK took a “comprehensive approach” to mutual recognition of each other’s regulations and worked together to reduce “regulatory divergence”.
While a deal on sanitary and phyto-sanitary (SPS) measures alone would have “no statistically significant benefit to UK trade,” a closer relationship that considers other areas of trade could boost UK exports by US$21.8bn, according to the research.
Examples of what this would look like include improved mutual recognition terms in the UK-EU Trade and Cooperation Agreement (TCA) on services exporters, as well as SPS measures.
Joint alignment on goods and services would yield economic benefits 10 times larger than the value of the UK’s post-Brexit trade deals with Australia and New Zealand, and would also outpace the benefits gained from the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
“The effects would also dominate the reported £2bn long-run gain in GDP from the UK’s accession to the CPTPP,” said the authors of the report.
Exports boosted
“The current risks to the UK economy – global instability, volatile markets, and economic protectionism – were not caused by Brexit, but they do underline the urgency of taking the specific actions which can most effectively and expeditiously make trading easier for British businesses, and the cost of living more affordable for consumers,” said Tom Brufatto, director at Best for Britain.
“Beneficial regulatory alignment is the change that British business and the UK economy has been waiting for.”
This deep alignment would help all of the UK’s regions, with Yorkshire and the English Midlands projected to see the greatest benefits.
“In particular, deep alignment in goods regulation reduces trade costs affecting goods, and therefore has a particular benefit to regions that are intensive in goods exports,” Brufatto added.
Tariffs
The paper also looked at the effects of US president Donald Trump’s tariffs.
Last week, Trump threatened the EU with tariffs but said that an arrangement could be “worked out” with the UK. Yesterday (10 February), Trump announced that all steel and aluminium products into the US would face 25% tariffs.
The research found that closer EU-UK alignment would reduce the impact of these by as much as a third, although it would still have a significant impact on the European economy.
Overall, however, the impact of Trump’s trade war would have a “negligible impact” on real GDP.
According to the report:
“Tariffs reduce UK goods exports, but services exports increase, because tariffs increase trade costs affecting goods relative to those affecting services, inducing a substitution from goods to services.”
Member exclusive
