The May 2025 “reset” between the UK and the European Union (EU) has been presented as a symbolic thaw in relations since Brexit. The Lancaster House summit, attended by senior EU figures and Prime Minister Keir Starmer, promised to “broaden and deepen” cooperation in areas such as defence, energy and youth mobility. But while the political significance is considerable, the direct economic gains are expected to be modest.
This article explores the main areas of economic engagement, the potential benefits and the constraints that continue to shape UK-EU relations.
Trade and Market Access
Post-Brexit frictions remain a drag on UK goods exports, which have underperformed since the country left the EU’s single market and customs union. The 2021 Trade and Cooperation Agreement (TCA) preserved tariff-free trade but imposed new regulatory barriers, limiting the scope for recovery.
The summit did not deliver a sweeping trade breakthrough but talks on sanitary and phytosanitary (SPS) rules could ease burdens on agri-food exporters. While welcome for the sector, macroeconomic effects are expected to be minor.
A more significant prize would be mutual recognition of conformity assessments – allowing regulatory bodies on either side to certify goods for the other’s market. Studies suggest this could raise UK exports to the EU by around 10%, and by up to 25% in high-value sectors such as chemicals and machinery. However, such agreements are rare in EU trade policy and would require deep alignment and trust, something Brussels has historically resisted with the UK.
Fisheries and Agriculture
The most tangible outcome was a 12-year extension of fishing rights allocations under the TCA. While politically contentious, the deal is expected to provide stability for the sector, which stands to gain from any SPS deal as well. Yet, given its contribution of only 0.04% to UK GDP, the overall impact will be negligible.
In parallel, Labour ministers are preparing to negotiate an agricultural export deal by 2027, with UK officials signalling readiness to align dynamically with EU standards – a sharp shift from past resistance to regulatory alignment.
Services: A Missed Opportunity
Services account for around 80% of the UK economy, yet the reset summit yielded no new progress. The absence of financial services “passporting” rights continues to limit access to the EU market, forcing firms to adapt through restructuring or EU relocations. While services exports have shown resilience, the lack of formal liberalisation leaves scope for hidden costs and inefficiencies.
Energy and Climate Cooperation
Both sides reaffirmed their intention to strengthen cooperation in energy. UK participation in the EU’s single energy market and the linking of emissions trading schemes could yield efficiency gains, lower compliance costs and enhance energy security. But negotiations remain at an early stage, and deeper integration would require regulatory convergence that London has so far hesitated to embrace.
Youth Mobility: Politics Meets Economics
Perhaps the most politically sensitive but economically significant proposal is a youth mobility scheme, enabling young people to live and work across borders. While the UK government initially resisted for fear of reviving the free movement debate, recent statements by chief EU negotiator Nick Thomas-Symonds suggest a shift in tone.
Labour shortages in sectors such as agriculture, hospitality and health care underline the potential economic benefits of easing labour mobility. Although politically contentious, a limited scheme could help alleviate these pressures while fostering closer social and cultural ties with the EU.
Defence and Security
Defence cooperation was another headline theme, with the UK expressing interest in closer involvement in EU initiatives such as the European Defence Fund and PESCO. While the direct GDP impact is uncertain, closer collaboration could generate industrial spillovers and efficiencies in defence spending, particularly in dual-use technologies.
Measuring the Economic Impact
The UK government estimates that SPS reforms and energy cooperation could lift GDP by 0.3% by 2040 – modest compared with the Office for Budget Responsibility’s estimate that Brexit reduced GDP by around 4%. Independent think tanks such as the Centre for European Reform place the potential impact of the reset between 0.3% and 0.7%, depending on the inclusion of youth mobility.
Even at the higher end, the gains represent only a partial offset to Brexit’s long-term economic costs. However, they compare favourably with other UK trade agreements, such as the UK-India FTA, expected to deliver half as much.
Political Red Lines and Strategic Value
The limited scale of the economic gains reflects enduring political constraints. For the UK, sovereignty over regulation and migration remains a red line. For the EU, preserving the integrity of the single market is non-negotiable. As such, relations are likely to remain in a “second-best” equilibrium – stable but suboptimal from an economic standpoint.
Yet the reset carries value beyond GDP. In a time of geopolitical uncertainty, stronger defence ties and greater energy security may matter more in the long run than immediate economic gains. As the UK government signals a readiness to align more closely with EU standards in select areas, the scope for incremental economic integration could grow – even if a full return to the single market remains off the table.
References
Menon, A., & Portes, J. (2025, June 24). What are the economic implications of the UK-EU reset deal? Retrieved from Economics Observatory: https://www.economicsobservatory.com/what-are-the-economic-implications-of-the-uk-eu-reset-deal
Stacey, K. (2025, August 27). Starmer’s EU negotiator gives stronger backing to youth mobility scheme. Retrieved from The Guardian: https://www.theguardian.com/world/2025/aug/27/starmers-top-eu-negotiator-hints-at-possible-youth-mobility-scheme
Photo:
https://th.bing.com/th/id/R.523bb1bb5d02508794ac2d49c01f3c44?rik=w%2fc3v4dVqrTHig&pid=ImgRaw&r=0
