Amid all the backslapping, and the sighs of relief from the UK automotive and steel sectors, following the world’s first post-tariff trade agreement with Donald Trump, the governor of the Bank of England made an important point.
The UK, Andrew Bailey told the BBC, must do everything it can to rebuild Britain’s battered trade links with the EU.
Bailey insisted that, as a public official, he did not take a view on Brexit. However, he said: “It is important we do everything we can to ensure that whatever decisions are taken on the Brexit front do not damage the long-term trade position. So I hope that we can use this to start to rebuild that relationship.”
He added: “It would be beneficial to have a more open economy to trade with the European Union. Because there has been a fall-off in goods trade with the EU over recent years.”
And, well, duh.
The narrative that has taken hold is that the US deal is a big win for Prime Minister Keir Starmer & Co., coming hot on the heels of a far superior arrangement with India.
While there has been a notable lack of detail, it should allow some cars and metals to be exported to the US without the really punitive tariffs Donald Trump has imposed on those sectors. The 10 per cent basic tariff will nonetheless remain in place. So while this is better than a kick in the teeth, it isn’t anything to write home about.
By contrast, an improved deal with the EU, which remains by far the UK’s biggest trading partner, would put anything agreed with the US, now or in the future, into the shade. Bailey didn’t quite come out and say that but it was implied. It would also be far more advantageous than even the excellent deal with India, which also sent out a message about the value of free trade (a point Bailey also made).
In 2023, the UK exported goods and services worth £348bn to the EU, 41.2 per cent of the total. The equivalent US number was £179.4bn, or 21.2 per cent. It is still an important market for the UK which is why the 10 per cent tariff on nearly all exports from this country will continue to hurt. But it is dwarfed by the giant market across the channel which is on Bailey’s mind.
The reason for this can be seen in figures filed at the House of Commons library. They show that goods exports to the EU remain below their pre-pandemic and Brexit levels. Last year, for example, they were 18 per cent below the 2019 number in real (inflation-adjusted) terms. Brexiteers argued that exiting the EU would catalyse a flowering of trade with non-EU countries boasting whizzy fast-growing economies, such as those in South East Asia. Um, no. Exports of goods to non-EU countries in 2024 were also 14 per cent below their 2019 level in real terms.
Services have done better. Sales of these to both EU and non-EU countries fell in 2020 but have since bounced back. In 2024, UK exports of services to the EU were 19 per cent above their 2019 level in real terms. Exports to non-EU countries were 23 per cent higher. Services – and this is a point worth remembering – were largely left out of the bare-bones Trade and Co-operation Agreement that Boris Johnson negotiated with the EU so that is an impressive performance. Now, just imagine how much better it would be for the UK and its service-based economy to successfully reduce the impediments that currently exist.
The governor spends a lot of time travelling up and down the country, speaking to business leaders. As a “public official” he soaks up their complaints about things like trade barriers. We also know, because it was all over the Bank of England’s minutes released following the decision to shave a quarter of a percentage point off interest rates, he is worried about the economy.
I don’t imagine his intervention went down terribly well with ministers hoping to end the week on a celebratory high after an overdue display of competence. But facts are facts and Bailey’s reminding them of some uncomfortable ones was timely.
Labour has often stated that it doesn’t want to re-litigate the past when it comes to Europe (translation: we’re desperately afraid of Nigel Farage). However, what its deals with both the US and India show is that you have to compromise to get things done. That includes, in the case of the US, allowing a huge increase in beef imports from ranchers.
It is bizarre that an agreement with the US is nonetheless hailed in some quarters while any compromise with the EU is immediately labelled as a betrayal. Needless to say, the latter also has a tendency to stick to the rules (it is famous for it) in a way that the US and some other countries the UK trades with do not.
If Starmer, and Chancellor Rachel Reeves, are to deliver the growth they’re always banging on about they should heed the words of the governor in Threadneedle Street and turn their attention to the real potential win for the UK economy.
