Bank of England Governor Andrew Bailey Urges UK to Rebuild EU Trade Ties Amid New US Tariff Deal

Bank of England Governor Andrew Bailey urged the UK to strengthen trade ties with the EU, highlighting the economic benefits of reversing the post-Brexit trade decline. His comments coincide with UK-EU negotiations to reset trade and security relations and follow a new US-UK agreement reducing tariffs on British exports. The UK is considering concessions to the EU, such as access for EU fishing vessels and alignment with SPS rules, to ease trade friction. Meanwhile, the EU is preparing potential retaliatory tariffs against the US amid ongoing transatlantic trade tensions.

Governor Bailey: Rebuilding EU Trade Is "Beneficial"

Speaking to the BBC, Andrew Bailey stressed the importance of restoring trade ties with the EU, the UK’s largest trading partner. While maintaining neutrality on Brexit itself, Bailey stated that reversing the decline in UK-EU trade since the UK’s departure from the bloc would be "beneficial" for the economy.

"It is important we do everything we can to ensure that whatever decisions are taken on the Brexit front do not damage the long-term trade position," Bailey said. "So I hope that we can use this to start to rebuild that relationship."

Bailey noted that the UK’s recent trade agreement with the United States could serve as a model for future deals and demonstrate the value of international trade cooperation. "It demonstrates that trade deals are important. Trade deals can be done, and the trade is important… honestly, it seems an unpromising landscape at times. But I hope that we can use these deals to rebuild the world trading system," he added.

UK-EU Negotiations: Resetting Trade and Security Relations

The UK government is currently in talks with the European Union to reset its trade and security relationship, with a summit scheduled for 19 May in London. The summit is expected to result in the signing of a new Security and Defence Pact and discussions on further cooperation in areas such as carbon trading, youth mobility, and veterinary standards.

According to reports, the UK is considering offering concessions to the EU, including a three-year access period for EU fishing vessels in British waters and dynamic alignment with the EU’s sanitary and phytosanitary (SPS) rules. These steps are seen as part of a broader effort to reduce post-Brexit trade friction, particularly in the food and agriculture sectors.

However, negotiations have encountered challenges. EU member states have yet to approve a formal mandate for changes to the Brexit deal, and new demands—such as equal tuition fees for EU students under a proposed youth mobility scheme—have added complexity to the talks.

Carbon Market Linkage and Industrial Strategy

Another key area of discussion is the potential linkage of the UK and EU emissions trading systems (ETS). While initial signals from the UK government were positive, recent reports suggest a more cautious public stance as negotiations approach. A senior UK official previously stated that relinking the carbon markets would be a "win-win" for both sides, helping to avoid additional costs for businesses and supporting climate goals.

The broader context includes calls for a joined-up industrial strategy to support the UK’s economic base. Bailey’s comments align with this vision, suggesting that improved trade relations with the EU could complement domestic efforts to boost growth and industrial resilience.

US-UK Trade Deal: Tariff Reductions on Key Exports

On 8 May, the UK and United States announced a new trade agreement that reduces tariffs on several British exports. Under the deal, the US will lower import taxes on up to 100,000 UK-manufactured vehicles annually from 27.5% to 10%, and eliminate tariffs on British steel and aluminum. In return, the UK will open its market to more American agricultural products, including beef and ethanol.

President Donald Trump, who reimposed global tariffs earlier this year, described the agreement as a "breakthrough" and emphasized its distinct nature from ongoing US-EU trade talks. "They very much want to make a deal. We’ll be dealing with them. We are dealing with them currently. This was separate because of Brexit in particular," Trump said.

Despite the progress, a 10% base tariff remains in place on most UK goods exported to the US. No formal treaty was signed at the time of the announcement, and further details are expected to be finalized in the coming weeks.

EU Response and Transatlantic Trade Tensions

While the UK secured a partial reprieve from US tariffs, the EU has taken a different approach. Brussels has launched a consultation with member states on potential retaliatory tariffs targeting US exports, including aircraft and automobiles, in response to the US’s 20% reciprocal tariff policy. The European Commission has emphasized that it is preparing for all scenarios, including the possibility of a prolonged trade dispute.

European Commission President Ursula von der Leyen stated, "There are good deals to be made for the benefit of consumers and businesses on both sides of the Atlantic. But at the same time, we continue preparing for all possibilities."

Market Reactions and Economic Outlook

The Bank of England’s recent decision to cut interest rates to 4.25% was accompanied by a cautious tone, with the Monetary Policy Committee signaling that future rate cuts would be "gradual and careful." Analysts noted that the BoE’s stance was less dovish than expected, with two of nine committee members voting to hold rates steady.

Sterling has shown some support amid the improving tone of UK-EU relations and the announcement of the US-UK trade deal. Analysts suggest that warmer ties with the EU could lead to improved growth forecasts from the Office for Budget Responsibility (OBR), potentially giving Chancellor Rachel Reeves more fiscal headroom in the autumn.

References

• UK must 'do everything' to rebuild trade with EU, says Bank boss
• US and UK agree deal slashing Trump tariffs on cars and metals
• EU targets US aircraft and car exports in new list of potential tariffs
• Trump tariffs live updates: Trump unveils 'breakthrough' US-UK trade deal, first since 'Liberation Day'
• Fact Sheet: U.S.-UK Reach Historic Trade Deal
• All-in on Brexit reset
• Hawkish Bank of England cuts rates but pushes back on faster easing