UK: EU trade deal remains the biggest prize - Standard Chartered

The UK government is aiming to build on recent momentum after trade deals with the US and India. The UK-EU summit on 19 May presents an opportunity to start reducing non-tariff barriers. An improved EU deal offers the largest economic upside of any trade deal, Standard Chartered's economists Christopher Graham and Saabir Salad note.

UK's grand ambitions

"The UK government is hoping to build on the momentum it has generated with the successful completion of trade deals with the US and India in the past couple of weeks. Although the US deal maintains a 10% baseline tariff, it reduces the impact of US sectoral tariffs on the UK. The UK-India free-trade agreement (FTA) still needs to be ratified and is unlikely to come into effect until next year, but it offers longer-term trade and growth benefits for the UK via lower tariffs and improved market access. However, the biggest prize - and the key focus for the UK government - will be a revised trade deal with the EU given the UK's outsized exports to the EU (Figure 1). The EU-UK summit, set to take place in London on 19 May, could provide a springboard for negotiations following progress on a new security and defence agreement."

"We do not expect the key parts of the Brexit deal to be reversed; the UK will remain outside the EU single market and customs union, and will likely resist a return to freedom of movement. Near-term obstacles to negotiations include the creation of a mutually acceptable youth mobility scheme and a long-term agreement on fishing rights. Given the EU's historical reluctance to allow cherry-picking with respect to market access, there is a clear risk that a broader deal takes longer to crystallise or falls well short of UK aspirations. However, we think the political will on both sides to improve the trading relationship is stronger than it has been since the 2016 Brexit referendum. The prospect of mutual recognition or regulatory alignment, at least in certain sectors, could significantly reduce non-tariff barriers, providing an economic boost to the UK."