Following a decisive victory in the July general elections, the newly elected Labour government under Prime Minister Keir Starmer has made economic growth and stability the cornerstone of its political discourse. With the UK’s annual GDP growth hovering at a modest 1.5%, Labour’s leadership faces an uphill battle to significantly boost productivity and drive development. Achieving meaningful growth, especially beyond the current limitations, requires more than political stability—it demands addressing deep-rooted structural issues that have plagued the UK economy since the financial crisis and were further exacerbated by Brexit.
The election marked a turning point in the nation’s political landscape, but the reality of governing, especially in the post-Brexit era, remains complex. Labour’s task is to not only stabilise the economy but to provide a clear roadmap for growth. The party has laid out its focus, but the spectre of Brexit continues to loom large, threatening to complicate any real progress. Despite its absence from the election campaign discourse, the UK’s departure from the European Union (EU) remains a dominant factor in economic policymaking and in shaping future relations with its largest trading partner.
Economic Aftermath of Brexit: A Lingering Impact
Brexit, which officially came into effect in 2020, has had a profound impact on the UK economy, trimming as much as 3% from the country’s GDP. The trade barriers, disruptions in supply chains, and loss of frictionless access to the EU’s single market have left industries struggling to adapt. UK productivity, already stagnating after the 2008 financial crisis, has continued to languish, leaving policymakers with few tools to reverse the trend. Any conversation around growth must reckon with this reality, as Labour navigates the complex landscape of Brexit’s economic fallout.
Despite the clear economic cost, Brexit was conspicuously absent from both Labour’s and the Conservatives’ election discourse. Labour, wary of reopening a divisive issue that had polarised the nation, opted to focus on competence, stability, and growth, while the Conservative Party, which orchestrated Brexit, avoided engaging with its messy legacy, choosing instead to concentrate on attacking the opposition. As a result, Britain finds itself in a Catch-22 situation, where the Brexit debate remains unresolved, yet too politically sensitive to openly address.
Labour’s Post-Brexit Strategy: Pragmatism Over Ideology
Under Starmer’s leadership, the Labour government has adopted a pragmatic approach to managing Britain’s post-Brexit relationship with the EU. Rather than pursue radical changes, Labour has emphasised economic stability and restoring Britain’s position on the global stage. In its efforts to re-establish ties, the government is prioritising diplomacy over integration, as seen in recent high-profile engagements like the hosting of the European Political Community (EPC) summit at Blenheim Palace and Foreign Secretary David Lammy’s outreach to EU counterparts.
However, these diplomatic gestures are unlikely to result in sweeping changes to the EU-UK relationship. Labour has been careful to distance itself from any suggestion of reversing Brexit, rejoining the single market, or entering the customs union, mindful of the potential political backlash from Leave-supporting constituencies. Instead, the party has pledged to focus on modest, technical improvements, such as easing border procedures, enhancing cooperation in research and education, and facilitating business travel. While these steps are important for smoothing trade flows and business operations, they are unlikely to generate the kind of economic boost needed to achieve significant growth.
Caution Amid Divided Public Opinion
Labour’s cautious stance on Brexit reflects the deep divisions within the British public. Although Labour won a landslide victory in terms of seats, it only secured 33.7% of the popular vote. Notably, Nigel Farage’s Reform Party, a populist force that has capitalised on dissatisfaction with Brexit’s handling, garnered 14.3% of the vote, despite winning only five seats. This underscores the continued appeal of Euroscepticism in certain parts of the country, and Labour is keenly aware that pushing for closer ties with the EU risks alienating a significant portion of the electorate.
The party’s strategy is therefore one of cautious pragmatism, focusing on rebuilding the domestic economy while navigating the delicate balance of international relationships. Labour’s economic plan centres on fostering a “home-grown” economy by shortening supply chains, promoting industrial subsidies, and pursuing Free Trade Agreements (FTAs) with key partners like India and the United States (US). These initiatives are designed to diversify Britain’s trade portfolio, but the EU remains its largest trading partner, making it impossible to ignore the importance of improving EU-UK relations.
EU’s Position: Little Urgency for Change
Across the Channel, the EU faces its own set of challenges, from the ongoing war in Ukraine and internal economic struggles to the rise of the far-right and debates over the bloc’s eastward expansion. In this context, improving relations with Britain, a former member, is not an immediate priority. The 2020 Trade and Cooperation Agreement (TCA), which governs current EU-UK relations, heavily favours the EU and remains in place. While the agreement is up for review in 2025, there is little appetite in Brussels for a fundamental renegotiation of the terms, which were designed to give the EU a competitive advantage in trade relations.
Nevertheless, there are areas where the EU has signalled a willingness to engage with the UK. Issues such as mobility for musicians, students, and professionals have become thornier since Brexit, with travel becoming more expensive and cumbersome. Although free movement of people remains off the table, there is interest in reducing red tape and costs associated with visas and work permits. The EU has also expressed hopes for Britain’s re-entry into the Erasmus student exchange programme, although financial constraints may limit this possibility.
Another area of potential cooperation is the mutual recognition of professional qualifications, which would ease the movement of skilled workers between the UK and the EU. However, this remains a complicated issue, closely tied to the single market, which the UK has explicitly chosen to leave.
Labour’s Modest Proposals for Trade and Cooperation
Labour’s proposals for easing EU-UK trade tensions include a veterinary agreement aimed at reducing border checks on agricultural products, particularly those entering Northern Ireland. Since Brexit, the UK’s agri-food industry has faced significant challenges, with border controls costing businesses an estimated €390 million annually. Despite these efforts to address technical barriers to trade, European officials remain wary of Britain’s selective engagement with the single market, which some have dubbed “cherry-picking”.
While these technical adjustments could provide some relief to affected industries, they are unlikely to lead to a fundamental change in the EU-UK relationship. For those hoping that Labour’s victory might open the door to Britain rejoining the EU, the reality is more sobering. Any negotiation to rejoin would be lengthy, with less favourable terms for the UK, and preparing the British public for such a reversal would be politically impossible at this juncture.
Security and Defence: A Promising Avenue for Cooperation
While the prospects for a transformational economic relationship remain slim, there is growing potential for enhanced cooperation between the EU and UK in the areas of security and defence. Labour’s manifesto outlined plans for an EU-UK security pact, focusing on defence, climate change, migration, and critical minerals. Britain’s robust support for Ukraine during the ongoing war has already cemented its role in European security, and Labour’s emphasis on prioritising the Euro-Atlantic theatre is a promising sign for future collaboration.
The UK has also signalled its interest in forging new defence partnerships, including the possibility of a Lancaster House-style treaty with Germany. In addition, there is speculation that both sides could explore the creation of an EU-UK Trade and Technology Council (TTC), similar to the ones the EU has established with India and the US. Shared global challenges, such as managing China’s growing influence and upholding the rules-based international order, provide further impetus for cooperation in this area.
For now, any significant transformation in the EU-UK relationship seems unlikely during Labour’s first term. The party is more likely to pursue incremental improvements in areas such as food trade and intra-firm transfers, while prioritising its trade and security relationships with India and the US. While these steps may deliver modest gains, they are unlikely to produce the substantial economic growth that Labour has promised.
One wild card that could dramatically alter the landscape is the outcome of the 2025 US presidential election. Should Donald Trump return to the White House, his transactional approach to alliances could force both the UK and the EU to rethink their strategic priorities. Trump’s first term saw a strained relationship with NATO and questions about America’s commitment to Europe’s security. In this scenario, the UK’s traditional reliance on its “special relationship” with the US could come under pressure, potentially driving Britain to seek closer ties with Europe out of necessity.
A Trump victory could paradoxically accelerate a rapprochement between the UK and the EU, as both sides might find themselves facing a more inward-looking America. The escalating war in Ukraine and increasing global instability would only heighten the need for unified action in Europe, forcing the UK to set aside old divisions and pursue greater cooperation.
As Labour begins its tenure in government, it faces the daunting challenge of delivering on its promise of economic growth while managing the lingering effects of Brexit. The path forward is likely to be one of cautious pragmatism, with small technical adjustments to EU-UK relations, rather than a dramatic shift in direction. However, in an unpredictable global landscape, circumstances may force Britain to reconsider its position, potentially ushering in a new chapter in its relationship with Europe.
