Modelling UK-EU integration

The initial UK-EU reset negotiations, launched in May 2025, are due to reach their conclusion later this year. We therefore explored the gains on offer for both parties by pursuing a more ambitious agenda for cooperation and economic integration, that builds on the current baseline offered by the Trade and Cooperation Agreement (TCA).

We examined two broad areas of cooperation: deeper regulatory alignment through an enhanced scope for mutual recognition; and greater integration with the EU Customs Union on goods through more liberal rules of origin.

Regulatory measures and rules of origin requirements are examples of non-tariff measures that can raise trade costs. Hence our approach is to explore the payoffs to both the UK and the EU of reducing these trade costs. We also wanted to see how these payoffs from cooperation on non-tariff measures play out in a world in which the US imposed higher tariffs.

We therefore modelled seven hypothetical scenarios:

1. Closer integration on agrifood, including via a bespoke agreement on Sanitary and Phyto Sanitary Measures, as envisioned under the current approach to UK-EU reset.
2. Deeper regulatory alignment between the UK and the EU on goods and services.
3. Closer integration on trade via more liberal rules of origin
4. More liberal rules of origin and deeper regulatory alignment between the UK and the EU on goods and services.
5. A “TCA-minus” scenario in which there is greater regulatory distance, and consequently trade frictions, than at present.
6. US tariffs plus scenario 4 (deeper alignment and more liberal rules of origin).
7. US tariffs plus scenario 5 (TCA-minus).

The effects on trade are shown in the charts below, while the table outlines the range of long-run effects on economic growth associated with changes to trade.

The results show that there are substantial gains from approaches to deeper integration between the UK and the EU that focus on addressing on-tariff measures. Such deeper integration goes beyond the scope of the current reset negotiations, and can build on the baseline provided by the TCA.

For the UK, scenario 4 allows it to recover a substantial proportion of losses suffered to trade and growth when it left the EU. The results for the UK under scenario 6 show that cooperation with the EU on non-tariff measures offers robust safeguards against US tariffs.  Both parties stand to lose from an erosion of the TCA (scenario 5), especially when US tariffs are factored. While the dollar values of trade effects in scenarios 1 to 5 are broadly similar for the UK and the EU, in percentage terms, the EU benefits less, because it is much larger than the UK. This also means that growth benefits for it are more muted.  However, cooperation with the UK is, for the EU, a good response to US tariffs: it reduces the costs of US tariffs to much smaller magnitudes. In a turbulent and unpredictable context, there is thus definite value for both parties, who have deep links at a variety of levels, to pursue deeper cooperation.

Click here to read our full report ‘Modelling EU-UK Integration Scenarios and the Effects of Protectionism’