The Brexit referendum of 2016 continues to ail the economic interactions on both sides of the Channel. The UK's exit from the European Union has dealt a significant blow to the close trade relations it previously shared with Germany. Once Germany’s fifth-most important trading partner in 2016, the UK has dropped to ninth place. Trade barriers, divergent regulatory frameworks, and the cessation of free movement have all dampened economic exchanges. Amid growing geopolitical crises, it is evident that closer European cooperation is key—not only for security capabilities but also for long-term prosperity. Ten years on, it is high time the EU and UK make strides in further developing their relationship, unlocking collaborations across key political and economic spheres. This holds immense potential for German businesses.

Agreement Lags Behind Single Market Status

Since the official EU exit, the 2021 Trade and Cooperation Agreement (TCA) between the European Union and the UK has formed the basis of mutual economic relations. While it provides comprehensive market access and complete customs-free trade, the level of economic integration achieved during the UK's EU membership remains unparalleled. As a result of Brexit, small and medium-sized enterprises (SMEs) in particular face increased requirements for customs declarations, conformity checks, and regulatory compliance.

Since 2022, third-country nationals must be sponsored by a UK-based entity to work temporarily in the country, complicating service provision by German companies. Following Brexit, the UK has deviated from EU law in areas such as financial market regulation and AI regulation, leaving businesses to navigate different rules across Europe. On May 8, 2025, the UK and the US also signed a trade agreement to deepen cooperation on standards. Given the US deviates from EU standards in various fields, this collaboration could further distance the UK from the EU, posing new trade barriers for European businesses.

Sharp Decline in Trade Ranking

The European Union remains the UK’s largest trading partner, accounting for 51.7% of British trade in 2024. In turn, the UK is the EU's third-largest trading partner after the United States and China (10.1%). EU direct investments in the UK amounted to nearly 1.8 trillion euros in 2023, while the UK invested over 1.3 trillion euros in the EU. In 2024, EU exports to the UK totaled 341 billion euros, while imports from the UK reached 164 billion euros. Once Germany's fifth-largest export market in 2019, the UK slipped to eighth place by 2025. Sectors particularly affected by Brexit barriers include companies in the goods trade, which now face complex customs formalities and rules of origin requirements in supply chains. Small and medium-sized enterprises are disproportionately affected. Restrictions on worker mobility and the non-recognition of professional qualifications also hinder trade in services. While "Quality Made in Germany" relies on "after-sales services" such as repairs, training, and installations, these have become increasingly difficult to provide.

Strengthening Relations at the EU-UK Summit

While the UK's re-entry into the European Union does not appear imminent, both sides should deepen institutional relations across all relevant fields. The German economy would welcome UK efforts towards a customs union or EU Economic Area membership. Ahead of the EU-UK summit in July, negotiations on a common area for health and plant health (SPS) and linking both emissions trading systems (ETS) should be concluded—especially so both sides can exempt each other from their CO2 border adjustment mechanisms, which have complicated mutual trade.

Additionally, negotiations for the UK's accession to the EU's internal electricity market should progress. Talks on an economic security agreement and the UK's re-entry into the Pan-Euro-Med Free Trade Zone (PEM) would also be desirable. Elements should include early warning mechanisms for resilient supply chains, a raw materials partnership, and a waiver of economic coercive measures. A closer EU-UK alliance in digital sovereignty should also be a priority. Finally, promoting dynamic legal alignment in key internal market areas, as well as simplifying business travel and mutual recognition of professional qualifications, would provide significant growth opportunities for German companies. In the current challenging landscape, such advancements are essential to secure growth and stability.