Could Labour build closer EU trade ties and would this increase growth?

The Bank of England governor, Andrew Bailey, used his Mansion House speech on Thursday to say Brexit had undermined the UK's economy and to urge the government to improve relations with the EU , for the sake of growth.

Could Labour pull the UK closer to the trading bloc – and would it make much difference to economic growth?

What are Labour's plans? Keir Starmer once used to argue for the return of free movement between the UK and the EU – an integral part of the single market that binds EU members together.

But Labour's prospectus for this year's general election made a much more modest set of proposals for making the trade and cooperation agreement (TCA), struck by Boris Johnson , work better.

These include trying to strike a sanitary and phytosanitary agreement (SPS) that could alleviate the need for veterinary checks of products such as food at the border; negotiating mutual recognition of professional standards, so that UK lawyers, architects etc could practise freely in the EU; and making it easier for musicians to tour the continent.

Will these changes boost growth? These modest aims mesh with the EU's determination not to reopen the TCA, as well as the fact that most EU countries have more pressing issues on their minds than bringing the UK back into the fold.

Some sectors could benefit significantly from reduced friction at the border. However, the limited nature of the plans means most economists believe any upside in terms of GDP growth is likely to be limited.

"We're talking about increments," says John Springford, of the Centre for European Reform. "While it's helpful and necessary to try and improve the deal, and absolutely Labour should be doing it, the idea that this will offset the sizeable cost of moving from the single market and customs union to the trade and cooperation agreement is for the birds." Treasury analysis previously suggested leaving the single market would depress GDP by 3.5%.

Returning to the single market and customs union has been firmly ruled out by Labour, which believes voters would not accept the quid pro quo of a return to unfettered EU migration.

Recent research by the Resolution Foundation thinktank did suggest there could be additional benefits if the UK chose to go further, aligning regulation with the EU across key sectors – something Starmer and Reeves have sometimes seemed sympathetic to.

For the moment, though, the EU has significant growth challenges of its own: the European Commission forecast on Friday that the German economy would decline by 0.1% in 2024, and the EU as a whole expand by just 0.9%, as the cost of living crisis continues to weigh on demand.

How does a Trump administration complicate the picture? Considerably. Trump plans to wield tariffs – taxes on imports – as a weapon in his "America first" approach to the economy, despite the fact that experts say the plan is likely to drive up inflation.

The incoming president has threatened to levy a tariff of up to 60% on all Chinese goods, and 10-20% on imports from the rest of the world.

How the policy will be rolled out is highly unpredictable. But Trump watchers believe he is likely to try to use the threat of tariffs to exact concessions from big trading partners – whether through pledges to buy more from the US, or even wider policy changes, such as a commitment to spending more on defence. He could also urge other countries to join the US in targeting China.

How could the UK respond? The government will have to decide whether to try to strike a deal with the US unilaterally, or line up alongside the EU, which could choose to retaliate with its own tit-for-tat tariffs.

The former Bank of England chief economist Andy Haldane suggested earlier this week that the UK should chart a middle course, seeking to improve the agreement with the EU, but also opening trade talks with the US under Trump.

That chimes with Bailey's suggestion that it is a "British characteristic" to be an "old-fashioned free trader".

However, previous efforts to negotiate with the US have foundered, given queasiness in the UK about accepting imports of agriculture products, such as chlorine-washed chicken or hormone-fed beef , and allowing US corporations greater access to the public sector.

Springford suggested the scope of any potential agreement was likely to be limited, particularly given that opening the door to more US agricultural products, for example, would complicate talks with the EU over veterinary standards. "It's more likely to be a kind of negotiation about what market access will we give to US interests, in exchange for Trump's tariffs being taken away," he said.