Prime minister Keir Starmer has unveiled details of a new agreement with the European Union, which the government says will “support British businesses, back British jobs, and put more money in people’s pockets”.
Among other things, the deal will reduce red tape on food and drink items being traded across borders, agree a new security and defence partnership between the UK and EU, and allow British holidaymakers to use more e-gates in Europe.
In return, EU fishing quotas have been extended until 2038, giving European boats continued access to British waters. These were originally due to expire in June 2026 following a post-Brexit deal.
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The UK and EU have also agreed to continue talks on a youth mobility scheme for 18-30 year-olds, and an Erasmus student exchange programme.
This is the latest in a series of deals agreed between the UK and international partners in recent weeks.
A trade deal with India, agreed earlier this month, should make it easier for UK firms to export products like whisky and cars. A trade deal with the US has also reduced tariffs on car exports from 27.5% to 10%, and from 25% to 0% on steel and aluminium exports.
Starmer claims it is evidence that Britain is “back on the world stage” – but will he be able to convince households, businesses and investors? The proof of the pudding will ultimately be in a more robust level of GDP growth and investment inflows.
With output “expected to slow dramatically this year”, it is “crucial that the UK pulls as many levers as possible to boost its growth prospects,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Will the EU trade deal boost British growth?
The EU is still the UK’s largest trading partner, but we have seen a 21% drop in exports to the region and a 7% drop in imports since Brexit, according to government data. Estimates from the Office for Budget Responsibility suggest Brexit has reduced long-term UK productivity by 4%.
The deal announced today (19 May) is far from a reversal of Brexit – there is no return to the single market, the customs union, or the free movement of people. It will, however, allow the UK to begin selling more products back into the EU again, including things like raw burgers and sausages.
The deal should also reduce some of the red tape businesses have been facing.
The British Retail Consortium (BRC), a trade association, has responded positively to the announcement. Changes to food and drink checks will “help keep costs down and create greater security in retail supply chains, ensuring the ongoing availability of key food imports for British shoppers,” said Helen Dickinson, BRC chief executive.
“As well as supporting growth for exporters to the UK’s biggest export market, retailers operating in the EU will also see a huge reduction in the unnecessary processes, paperwork and administrative burden when exporting goods, supporting our competitiveness abroad.”
Combined with another aspect of the deal focused on energy trading, Number 10 says the measures will add almost £9 billion to the UK economy by 2040.
A welcome boost – but “no gamechanger” for the economy
While today’s deal is a positive first step, the economists at financial institution ING argue that it “won’t massively boost the economy or help avoid tax rises in the autumn”. Food and animal exports simply aren’t a large enough part of the UK economy in their own right.
Despite this, the deal does signal a significant improvement in UK-EU relations. The tone of the press conference was warm. There was talk of “new chapters” and standing “shoulder to shoulder”. President of the European Commission Ursula von der Lyon even reminisced fondly about time spent in London as a student.
If the UK uses this platform to negotiate closer alignment elsewhere, ING thinks it could unlock £10 billion or more in fiscal headroom.
“The next obvious step would be for the UK to sign up to the EU’s rulebook on products beyond agriculture,” said James Smith, developed markets economist at the firm. “In theory that shouldn’t be too difficult, given the UK hasn’t made much use of its autonomy to change these rules. The ‘CE’ mark – showing a good complies with EU regulations – is still generally accepted in the UK.”
Should this change come into play, Smith thinks the OBR might be convinced to revise its annual growth forecasts up by 0.1% a year, resulting in an extra £10 billion of fiscal headroom.
Putting these figures into context, he added: “An extra £10 billion roughly equates to the revenue raised by a one percentage-point rise in employer National Insurance, or a little more than a 1 percentage-point hike in the basic rate of income tax, according to UK Treasury estimates.”
What could the UK-EU deal mean for investment markets?
The FTSE 100 closed 0.2% higher after the UK-EU deal was announced on 19 May, while the more domestically-focused FTSE 250 closed 0.1% lower.
It is worth pointing out that any boost from the trade deal may have been counteracted by other factors on the global stage. Moody’s slashed its triple-A rating for the United States late on Friday, dampening sentiment in global markets on Monday morning.
While the immediate impact is difficult to disentangle, a deal should be good news for UK investments over the longer term.
“The British voted for Brexit in 2016 and subsequent governments have sought to implement it, but the financial markets have never liked it. This can be seen in how sterling has failed to recapture the ground lost against the dollar and the euro in the immediate aftermath of the referendum,” said Russ Mould, investment director at platform AJ Bell.
“A greater willingness to engage and seek some trade-offs with the EU may win back a little of that lost faith, and sterling-denominated assets may be able to glean a little benefit from how investors are starting to question the dollar and the concept of American exceptionalism,” he added.
Investment managers will be hoping to see this translate into inflows over the coming months. UK equity funds have bled assets ever since Brexit, with outflows from the sector totalling £4.2 billion in the first quarter of 2025 alone, according to the Investment Association.
Some analysts think we could see a shift given recent volatility in the US. For the first time in a long time, the FTSE 100 has significantly outpaced the S&P 500 so far this year. London’s blue-chip index is up more than 6% year to date, while the S&P 500 is up more than 1%. After almost a decade out of favour, the UK market could also offer better valuation opportunities.
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