GCC trade deal may be key to UK’s economic recovery

Since the 2008 financial crisis, the UK economy has grappled with low productivity and stunted economic growth. Despite being the world’s sixth-largest economy, the UK today has an unemployment rate above 4 percent, low industrial output and a housing crisis. Add to that the policy paralysis that comes with four different prime ministers in the last four years and it is clear why the UK needs to rethink its economic position.
In 2024, while the UK economy showed a robust rebound in the first half of the year, in the third quarter it showed 0.0 percent growth. This year began with a sharp fall in government bond prices and a 1.2 percent loss in value in the British pound against the US dollar. The International Monetary Fund projects 1.6 percent gross domestic product growth in 2025.
Having come to power last July in this troubled economic context, one of the Labour government’s priorities is the establishment of a free trade agreement with the Gulf Cooperation Council, negotiations for which started in 2022 under former Prime Minister Boris Johnson. According to the government, this will lead to substantial economic benefits for the UK by potentially increasing the country’s annual workers’ wages by £600 million ($749 million) to £1.1 billion and adding up to £3.1 billion to GDP by 2035. Crucially, the free trade agreement has the potential to increase UK-GCC trade by 16 percent.
Last September, UK Trade Secretary Jonathan Reynolds and Trade Policy Minister Douglas Alexander chose the Gulf for their first joint international visit, showing the urgency of the negotiations for the government. This commitment was reiterated in October during the government’s International Investment Summit. Prime Minister Keir Starmer’s December visit to the UAE and Saudi Arabia confirmed this priority.
The GCC is a natural partner for the UK, given the decades-old strategic, investment and diplomatic cooperation between the two sides. UK-GCC trade stands at about $65 billion, with the Gulf as a bloc being the UK’s fourth-largest trade partner. Further, initiatives like the UK-Saudi Arabia Strategic Partnership Council, the UK-UAE Partnership for the Future, the UK-Qatar Strategic Dialogue, and joint working groups with Bahrain, Oman and Kuwait have laid the groundwork for deeper cooperation across critical areas such as security, development, trade and investment.
The trade negotiations have been revived at a strategic juncture, where both the UK and the Gulf states are investing in sectors of mutual interest, such as fintech, artificial intelligence, digitization and renewable energy. This has increased the avenues for cooperation between the two sides, as they are able to exchange expertise and best practices.

The GCC is a natural partner for the UK, given the decades-old strategic, investment and diplomatic cooperation between the two sides.

Zaid M. Belbagi

Once established, the free trade agreement will facilitate easier movement of talent, allow British companies to access the fast-growing Gulf market and provide the Gulf consumer with a wider variety of goods and services. Separately, an enhanced trade regime between the two sides will increase investor confidence in the UK and the Gulf states. It may also provide the necessary momentum to the London Stock Exchange by drawing Gulf listings.
While negotiations are underway, further delay is to be expected given that the GCC is not one unified, standardized economy. Each member state has its own economic priorities and existing relationship with the UK. Smaller economies such as Bahrain and Oman particularly stand to benefit from this deal. The UK has been the largest foreign investor in Oman recently, with more than $5 billion of British investment and nearly $1.5 billion in British exports over the past year. A Gulf minister familiar with the matter stated that the delay in the negotiations was due to the internal challenges in the UK.
Parallel to the free trade agreement negotiations, the UK has ventured into bilateral partnerships in strategic sectors to provide further impetus to its economy. This month, the UK announced plans to sign a critical minerals cooperation agreement with Saudi Arabia at the Future Minerals Forum in Riyadh. As per this agreement, the UK would secure the long-term supply of minerals such as copper, lithium and nickel, which are critical components in electric vehicles, smartphones and AI data centers.
The UK is counting on its international partners to support its economic recovery. A robust UK-GCC free trade agreement may thus hold the key to its economic recovery. Increased exports and investments are bound to have positive spillover effects on the British economy, such as job creation and increased consumer spending. Beyond these tangible benefits, a free trade agreement would also be a step toward strengthening diplomatic and strategic relations between the UK and the Gulf at a time when the former’s global influence is waning.
The UK has sought to restore this influence by carving out a place for itself in the region’s defense, security and strategic framework, as seen in its recent joining of the US-Bahrain Comprehensive Security Integration and Prosperity Agreement. The government is also due to release its strategic defense review, which is expected to prioritize Gulf security cooperation.
In light of such progress, the establishment of the free trade agreement will strengthen UK-GCC relations at a time of heightened geopolitical volatility in the Middle East. However, given the high international interest in investing in and partnering with the Gulf, significant delays in establishing the agreement may weaken the competitiveness of the UK’s offering to the region.

• Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the Gulf Cooperation Council. X: @Moulay_Zaid