‘Fundamental revisit’ of UK-EU trade needed, says BOE policymaker

Britain’s trade strategy needs reinventing to ensure both services and manufacturing businesses can thrive following the nation’s exit from the European Union, according to a paper co-authored by a Bank of England policymaker.

Swati Dhingra, who sits on the central bank’s nine-member Monetary Policy Committee, suggested a “twin-track” strategy for the UK in a paper written with the principle economist for the Resolution Foundation. 

It proposed that high-value manufacturers — such as car-makers and chemicals firms that are reliant on Europe’s supply chains – are protected, while Britain’s dominant services sector is allowed to access new markets. 

The remarks set out a way to reverse years of economic stagnation and low productivity following the Brexit vote in 2016. The Bank of England has forecast a medium-term growth rate of around 1%, and official data show goods exports in the first quarter of 2023 were 11% lower than the final quarter of 2019, just before Britain officially withdrew from the EU.

Britain needs to “fundamentally revisit” its trade arrangement with the EU, Dhingra and her co-author Sophie Hale wrote in the paper. They suggested the UK aim to replicate Northern Ireland’s position by becoming part of the EU customs territory and single market for goods. This could boost gross domestic product by as much as 2%, the authors said.

The economists also suggested a new services trade agreements covering industries such as finance, business services, education and culture, which would focus on mobility of workers, recognition of qualifications and digital agreements rather than tariffs.

“The recent focus on signing Free Trade Agreements to limit the loss of post-Brexit of market access has been successful, but has now run out of road with no prospect of further significant agreements,” Hale said. 

“A new strategy must recognize the nature of the UK economy, developments in global trade patterns, and rising geopolitical tensions regarding goods trade in particular.”