The UK has a new Prime Minister who has promised to revive the nation’s economic fortunes. But he follows a succession of PMs who have pledged the same without ever managing to consistently deliver.
At the BCC, we think about little else than helping businesses and our economy thrive. That’s why we have developed a plan centred around three clear priorities the government must focus on: trade, investment and productivity.
If Andy Burnham is serious about delivering growth, then he must take a fresh look at trade:
Improving the UK’s international trade performance must be a key economic focus for the new government. The story of the 2020s has been a tale of two diverging economies – a sharp decline in goods exports, particularly to the EU (in the region of 14.5% to 16%), offset by a surge in services exports, up by 26% in volume terms. The challenge must be to protect that growth in services whilst strengthening goods exports. Cambridge Econometrics analysis shows that, in 2025, a 2% increase in exports would have increased economic growth by 0.6 percentage points – almost a 50% increase on the 1.3% actually achieved.
There are three key ways to expand our exports:
- Lower tariffs and other trade barriers to reduce burdens and costs for exporting firms in goods and services
- Pursue a stronger economic security agenda to diversify and secure the UK’s global supply chains in vital industrial sectors, helping firms which import
- Deliver a step change in the UK’s economic diplomacy approach, including enhanced export promotion and growth.
Lowering trading costs, improving market access
The EU
The EU continues to be the UK’s largest trading partner, and by some distance in goods trade – with 48% of overseas sales headed to EU customers. Since the 2016 Brexit referendum, the UK’s goods trade balance with the EU has slumped from a deficit of £23bn to £35bn, according to Office for National Statistics data. Goods exports have declined by between 14.5% to 16% according to recent analyses by the Centre for European Reform and the Institute for Public Policy Research. In terms of the variety of products sold, the picture is even worse. Aston University established a decline of between 20-42% in the number of different products, like food and industrial goods.
Last year’s EU-UK Leaders’ Summit gave some renewed hope for a closer trade relationship. It led to the ongoing Common Understanding negotiations which could lower costs for those in the agri-food and plant sectors considerably, open up markets and reduce trading costs. Alongside a deal on Emissions Trading Scheme linkage (vital for the competitiveness of key exports like steel) and a youth experience scheme, the BCC estimates the benefits for the UK economy could be between 0.4% to 0.59% in additional GDP growth. This is based on Office for Budget Responsibility and Centre for European Reform data.
These deals should be reached at the next Leaders’ Summit, due to happen no later than this autumn.
For businesses across the UK and the EU, however, ambitions are focused on what else needs to be achieved. The current deals leave key sectors like chemicals, pharmaceuticals, and automotives with unchanged compliance burdens. In some cases, these could be added to by further regulatory divergence between London and Brussels in the coming years. There is a risk of constant negotiation on shorter-term issues leaving little bandwidth to address the structural challenges faced by firms. These include efforts to expand exports of industrial goods, and professional and business services. The BCC would urge the government to conduct a definitive analysis of the impact of Brexit on UK trade and the wider economy. This should identify actions to improve the economic, security and trade relationships, including potential trade-offs for a more structured approach – which could deliver more long-term trade and economic growth.
The United States
The BCC wants to see Ministers focus on achieving full implementation of the Economic Prosperity Deal and Technology Prosperity Deals reached with the US Administration, last year. Both deals provide a platform to deliver relative stability on tariffs and investment opportunities in key sectors. Securing a return to a zero-tariff quota for a share of UK steel and aluminium exports, as well as downstream products being exempted from section 232 tariffs, is a key priority. Further progress is also needed on negotiations on services (where the US is our largest trading partner) and digital trade.
The Next Generation Of Trade Agreements
The UK has concluded six full free trade agreements (FTAs) in the post-Brexit period, alongside accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The BCC’s assessment of the first five FTAs and CPTPP accession is a long-term uplift to GDP growth of 0.41% by 2040. The UK has also reached digital trade agreements with Singapore and Ukraine. These deal with data flows, customs processing commitments, and other trade facilitation measures focused on digitalisation – adding around 0.1% to total GDP, according to government impact assessments. There has also recently been an enhanced agreement struck with Switzerland.
In terms of the current FTA negotiations pipeline, the UK is negotiating an upgraded FTA with Türkiye, with likely significant additions to services. It may also seek an FTA with Greenland, incorporating key economic security commitments in terms of supply and refining of key growth minerals.
The BCC favours negotiation of further sectoral ‘mini-deals’ on areas such as digital trade and energy with countries, including Canada. Supply chain agreements of a more sectoral nature will also be required with a host of like-minded states, from Chile to South Africa, to meet the challenges around growth minerals. These are necessary to fuel expansion in key sectors like automotives, climate technologies and advanced manufacturing. The BCC also favours a services-only agreement with China, subject to suitable safeguards.
Beyond this the UK FTA programme needs to be refreshed to unlock more opportunities in fast-growing markets. In recent weeks, the previous government launched calls for input on FTAs with Uruguay, the United Arab Emirates (UAE), Philippines and Indonesia – largely linked to their CPTPP accession processes. The BCC favours full FTAs with four new candidate blocs/countries: Mercosur, Indonesia, Thailand and the Philippines. These are all in the fast-growing Americas and Indo-Pacific regions, with geopolitical and competitiveness drivers for deals too. A deal with the Mercosur bloc, in South America, has more advantages for key UK economic sectors than one with just Uruguay. If further trade commitments can be agreed with the UAE, beyond the recent FTA with the Gulf Co-operation Council (GCC), then this is also sensible to pursue. The BCC will be making the economic and trade case to Ministers for the inclusion of these four new FTAs in the trade policy agenda.
The first four FTAs negotiated by the UK Government post-Brexit also introduced self-certification for origin and other trade document purposes. But a different approach was agreed for the UK FTA with the GCC states, where Chamber-generated Certificates of Origin can co-exist with self-certification. This approach should be carried forward into new FTA negotiations. It preserves a level playing field between the two approaches to trade documentation, which allows those that need support with documentation to draw on the expert Chamber Network.
Stronger Economic Security Agenda
The US and EU have moved at pace in this decade to upgrade their policy toolboxes on economic security, and to reduce reliance on other countries for essential input minerals. The UK must take similar measures as the linkages between trade policy and industrial policy become ever closer. The government must quickly secure supply chains for future economic growth, legislate to stop economic coercion in trade disputes, and consider closer defence co-operation with key partners.
More secure and diverse supply chains are essential to provide guaranteed sources of growth metals and minerals for sectors like electric vehicles and climate technologies. For example, lithium needs an increase of 13,333% in supplies by 2036 – if growth forecasts for the UK’s electric vehicle, wind and solar sectors are to be delivered. The previous administration set a target of 10% for domestic sourcing and to reduce reliance on individual countries for imports of growth minerals.To increase supply chain resilience a range of agreements with likeminded partners are needed, including Canada, Chile, and partners in Africa and the Indo-Pacific.
In terms of the EU, the UK has a fundamental role in pan-European supply chains, creating jobs and investment across the continent. This should be reflected in a binding economic security deal with the EU. Once agreed, it could then act as the guiding principle in industrial and tech policy decisions made by either side.
The government must also quickly upgrade its economic security powers by legislating for a UK Anti-Coercion Instrument. This would provide Ministers with additional powers to restrict trade, investment, and data to respond to coercive threats by third party states to the UK’s commercial interests. These powers are of such significance, they should only be exercised through a Cabinet Committee on Economic Security, chaired by the Prime Minister. They will also require suitable safeguards on data, services and investment flows.
The UK’s defence industry is now a vital economic and national security priority for the UK. The government should consider associate membership of the European Defence Agency or exploring bespoke models with other European defence powers on financing, long-term procurement processes, supply chains, innovation, research and skills. These should build upon the UK’s successful inclusion within the Ukraine loan deal.
Effective Economic Diplomacy and export growth
Trade agreements need effective economic diplomacy to yield the strong growth which the PM’s new economic model requires. The Chamber Network is a key partner to the FCDO and DBIST in refitting the UK’s approach to economic diplomacy. Our 51 Chambers in the UK, and more than 70 internationally, work with the Diplomatic Advisory Hub (a joint BCC/FCDO venture). It aims to drive export growth from firms across the UK to markets around the world, identifying emerging opportunities in the fastest growing sectors.
To bolster this aim, the BCC would support the creation of an SME-focused Export Growth Facility. This would build upon the welcome increase in financial capacity from UK Export Finance and act as a focus for UK government efforts on trade promotion and support. This is an approach taken by Combined Mayoral Authorities in England, including Greater Manchester, and the Scottish and Welsh Governments. Indeed, Welsh Government research indicates that investment in targeted export promotion activities yields a 20-fold rise in export sales. A fresh start on export support is needed, ending the patchwork of support currently on offer in England. This has left some areas without dedicated resources for the first time in decades.
Pursuing this agenda will require a laser-like focus by government and business alike. But the prize of more secure conditions to expand trade in the world of the 2020s is vital for growth.
The BCC’s top three key asks of the new Government are:
- Lower trading costs by removing trade barriers with our most significant and highest growth potential trading partners, including the EU and US.
- Reach economic security agreements to provide long-term guarantees on our international supply chains and beef up the policy toolbox to defend UK commercial interests, globally.
- Expand the reach of UK economic diplomacy and strengthen the vital role of export growth within that.