United Kingdom: Gradual EU reset shapes growth outlook – Rabobank

Rabobank argues that closer EU–UK ties under Prime Minister Starmer will proceed through targeted, technical agreements that only marginally improve the United Kingdom’s growth outlook. The bank estimates Brexit has already cut UK output by about 4%, and says incremental alignment on trade, labor mobility and regulation will not quickly lift living standards or materially change the macro trajectory.

Incremental reset, limited growth payoff

"Ahead of the next EU–UK summit, expected in July, we anticipate progress in four areas: youth mobility, agri‑food, energy, and defense. We discuss these below. As negotiations will proceed in parallel, trade‑offs across these areas will shape the overall outcome. The gains are likely to be incremental rather than transformative, useful as a signal of competence, but not a game‑changer. They are also unlikely to shift the balance in Starmer’s favor on their own, should a leadership challenge take hold."

"This suggests that any gains from closer EU ties will also emerge slowly. Reducing frictions with the EU makes clear economic sense, but it will not deliver rapid improvements in living standards. With the UK maintaining its current red lines and the EU continuing to link access to concessions, progress is likely to remain incremental and technical, limiting its political impact ahead of the next (leadership) election."

"As we explained last year, we prefer to look at a benchmark which places greater weight on geographically and economically comparable Northern European economies. It may give you slightly lower explanatory power in a world that pre-dates Brexit (and all the subsequent crises), but does intuitively make much more sense. Using this approach, and updating our analysis through to 2025Q4, the UK’s post-Brexit underperformance appears less severe than in many other synthetic control estimates, but is still meaningful. Taking 2016Q2 as the starting point, we estimate a cumulative shortfall of around 4.2%. This is broadly unchanged from a year ago, but still equates to roughly GBP 1,750 per person per year, a gap that would have eased current cost‑of‑living pressures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)