What’s Next for UK-EU Trade? Navigating a New Reality

Since Brexit, UK-EU trade has faced significant disruptions, but businesses on both sides are learning to adapt to a new reality. As we move further into the post-Brexit era, there are several key trends and developments that will shape the future of UK-EU trade. These trends will determine not only the short-term impact but also the long-term outlook for trade relations between the UK and its largest trading partner.

Challenges with Regulatory Alignment

One of the major ongoing challenges is the divergence in regulatory standards between the UK and the EU. As the UK pursues its own trade policies and regulations, businesses trading across the channel must keep up with differing product standards, customs requirements, and compliance protocols. This regulatory divergence could continue to create friction, leading to additional costs, delays, and complexity for UK exporters and importers.However, the UK government is seeking to simplify certain regulatory processes, including the introduction of the "Retained EU Law (Revocation and Reform) Bill," which aims to either amend or repeal many of the EU laws carried over post-Brexit. While this could reduce some of the regulatory burden for UK businesses, it could also lead to further misalignment with EU standards, making cross-border trade more complex.

The Windsor Framework – Easing Tensions

One positive development is the introduction of the Windsor Framework, which was agreed upon in early 2023. This agreement seeks to resolve many of the issues surrounding the Northern Ireland Protocol, particularly in terms of goods moving between Great Britain and Northern Ireland. By creating new "green lanes" for goods staying in Northern Ireland and reducing the need for checks and paperwork, this framework could ease tensions and trade disruptions related to Northern Ireland's unique status. While the Windsor Framework will not eliminate all challenges between the UK and the EU, it represents a step towards smoothing trade operations, especially for businesses that rely on seamless movement of goods between Great Britain, Northern Ireland, and the EU.

Potential for a UK-EU Services Agreement

The services sector, which accounts for about 80% of the UK’s economy, remains largely outside the scope of the current UK-EU trade agreements. Post-Brexit, UK-based service providers, including legal, financial, and professional services, have faced new hurdles in accessing the EU market. Looking ahead, there may be pressure from businesses and industry groups for a comprehensive UK-EU services agreement. This would help smooth out the barriers that UK service providers currently face when operating within the EU, including recognition of professional qualifications, visa requirements for short-term work, and digital trade. A services deal could be a key component of rebuilding trade relations, allowing both parties to benefit from a closer relationship in areas where the UK has a competitive edge.

Supply Chain Adaptation and Resilience

UK businesses have had to rethink their supply chains in light of Brexit-related disruptions, with many companies shifting their focus away from the EU and towards other international markets. However, trade with the EU remains critical, and businesses are increasingly investing in supply chain resilience to mitigate the impact of border checks, tariffs, and delays. Many firms are adopting technology-driven solutions, such as digital customs platforms, to streamline trade processes and reduce friction at the border. Others are moving toward dual-sourcing strategies, where suppliers from both the EU and non-EU countries are used to spread risk and reduce dependency on any single region. The ongoing focus on diversification of suppliers, combined with the use of technology, will play a crucial role in ensuring smoother and more resilient supply chains for UK-EU trade.

Green Trade and Sustainability Initiatives

As climate change and sustainability continue to dominate the global agenda, trade between the UK and the EU is likely to be shaped by green policies in the coming years. The European Union has made significant commitments to becoming carbon-neutral by 2050, and the UK has set similarly ambitious climate targets. One key aspect of this is the EU’s Carbon Border Adjustment Mechanism (CBAM), a carbon tax on imports based on the carbon emissions associated with their production. UK exporters selling carbon-intensive goods to the EU may soon face additional costs if they do not align with the EU's climate standards. Similarly, the UK is likely to implement its own environmental regulations for imports. Green trade initiatives will require businesses on both sides to rethink their supply chains, energy usage, and environmental practices to remain competitive in the new, greener economy.

Future Trade Negotiations and Adjustments

While the Trade and Cooperation Agreement (TCA) between the UK and the EU governs the post-Brexit trading relationship, it is subject to periodic reviews and renegotiations. The first major review of the TCA is expected in 2026, offering an opportunity to address some of the challenges that have emerged since its implementation. Both the UK and the EU could use this opportunity to refine their trading relationship. For example, they could focus on further reducing barriers to trade, improving regulatory cooperation, or expanding the agreement to include more sectors like financial services and digital trade. At the same time, the UK's negotiations with other international partners, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), may influence its trade policies. As the UK becomes more integrated with non-EU markets, it may seek to balance its relationships with the EU and other trading blocs.

A Long Road Ahead

The future of UK-EU trade will be shaped by a complex interplay of regulatory, economic, and political factors. Businesses must continue to adapt to this evolving landscape by focusing on innovation, supply chain resilience, and strategic diversification. While there are clear challenges ahead, there are also opportunities for closer cooperation, particularly in areas like services, green trade, and digital transformation. As the relationship between the UK and the EU continues to evolve, businesses that remain agile and proactive will be best positioned to navigate the changing tides of UK-EU trade.

What to Watch:

• The implementation of the Windsor Framework
• Potential for a UK-EU services agreement
• The impact of environmental and sustainability regulations on trade
• The upcoming 2026 review of the Trade and Cooperation Agreement

The future may be uncertain, but one thing is clear: UK-EU trade will continue to be a critical component of both economies, requiring ongoing negotiation, adaptation, and collaboration.