Multiple economists said that agreeing a closer economic relationship with Brussels would help improve the UK’s growth – though it remains highly uncertain how much difference it will make.
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Reeves has faced warnings that amidst global economic turbulence there is a high chance she will need to raise taxes or cut spending again in the autumn, to avoid breaking her self-imposed borrowing rules.
Negotiations with the EU are intended to ease trade by securing a deal to reduce checks on imports and exports, as well as making it easier to hire some workers across borders, and closer co-operation on security and defence. An outline agreement is expected to be announced on Monday at a summit in London.
Stephen Millard, interim director of the National Institute of Economic and Social Research, told The i Paper: “In 2024 we exported roughly £6.5bn to India, roughly £53.5bn to the United States and roughly £159bn to the European Union.
His colleague Fergus Jimenez-England added: “I don’t think this is likely to fundamentally change the course of public finances, but that is not to say it is not a step in the right direction.” He suggested that getting closer to the EU could provide a positive signal to investors that Britain is serious about pro-growth policies.
Frontier Economics and ING are both forecasting an uplift of around £10bn to the public finances over the next few years, providing some relief to the Chancellor.
“That said, the Government’s new migration policy may reduce GDP growth by something like 0.1 per cent, so we might end up in a very similar place to where we are now.”
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Read MoreA Treasury source said that the deal set to be announced on Monday would be “a stepping stone towards the new relationship that Keir has set out” but would only represent “the first step”.
The insider added: “Tackling some of the barriers to trade with the EU is an important part of the growth agenda, but the Chancellor’s growth strategy is also about capital investment, about planning, and other things.”
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