UK closer EU ties could bolster growth strategy

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UK closer EU ties and growth

Highlights

Goldman Sachs estimates a UK-EU customs union could raise GDP by about 1 per cent, and single market membership by 2 to 5 per cent.
The Office for Budget Responsibility assesses Brexit has reduced UK potential productivity by 4 per cent, highlighting the growth upside of closer EU ties.
Market participants view partial reintegration with Europe as a key policy option that could significantly boost credibility in Labour’s long-term growth strategy.

EU reset enters growth debate

As the Financial Times reports, Andy Burnham is pushing for a more open discussion about the UK’s options with Brussels, with a speech expected around the time of the November 20 EU-UK summit. His argument is that repairing relations with the EU in an amicable way could add percentage points to UK growth, although the scale of any benefit depends on how far the government is willing to go.

The debate comes as Labour faces criticism that its growth agenda remains too limited. While the government is putting weight on higher public investment, planning reform and devolution to major urban areas, the article argues that broader economic changes capable of materially lifting productivity still appear distant.

Burnham’s intervention also has a political dimension, as Labour seeks to reinforce support among younger pro-European voters and fend off pressure from parties on its left and centre-left. At the same time, internal party unease remains evident, particularly around sensitive questions such as freedom of movement and the extent of any renewed alignment with EU rules.

Investors weigh economic upside

Market participants and economists are increasingly focused on the growth implications of a closer UK-EU relationship. Goldman Sachs says this month that stronger ties with the EU would notably reduce the cost of Brexit, estimating that a customs union could raise GDP by about 1 per cent, while single market membership could deliver a 2 to 5 per cent boost by lowering regulatory barriers.

Those estimates sit alongside the Office for Budget Responsibility’s view that Brexit has reduced the UK’s potential productivity by 4 per cent. Even so, economists caution that easier access to the European market would not by itself restore investment quickly or replace other supply-side reforms needed to improve the UK’s long-term performance.

Dean Turner of UBS Wealth Management says investment that did not come to the UK is unlikely to return overnight simply because the country rejoins the single market. Still, the prospect of partial reintegration with Europe is emerging as one of the few policy options that investors see as capable of giving Labour’s longer-term growth strategy greater credibility.

In our earlier article on Mario Draghi’s warning about the stability-versus-growth trade-off, we explained how aggressive inflation fighting and debt control can end up suppressing the investment needed for productivity and resilience. The piece also highlighted Draghi’s call for growth-supporting measures beyond monetary policy, including deeper EU market integration and targeted industrial policy to de-risk strategic investment such as AI.

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