GCC trade agreement: a vital boost for the UK’s economic recovery

The UK is increasingly relying on international partnerships to drive its economic recovery

By Zaid M. Belbagi

Since the 2008 financial crisis, the UK economy has struggled with low productivity and sluggish growth. Despite being the world’s sixth-largest economy, the UK currently faces an unemployment rate exceeding 4 percent, weak industrial output, and a housing crisis. Compounding these challenges is the political instability of the past four years, with four different prime ministers taking office. This turbulent backdrop underscores the urgent need for the UK to reassess its economic strategy.

In 2024, the UK economy showed a strong rebound in the first half of the year but stagnated in the third quarter, recording 0.0 percent growth. The year also began with a sharp decline in government bond prices and a 1.2 percent depreciation of the British pound against the US dollar. The International Monetary Fund projects the UK’s GDP growth at 1.6 percent in 2025.

Against this challenging economic landscape, the Labour government, which took office last July, has prioritized securing a free trade agreement (FTA) with the Gulf Cooperation Council (GCC). Negotiations for the deal began in 2022 under former Prime Minister Boris Johnson. According to government estimates, the agreement could significantly benefit the UK economy, potentially boosting 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 FTA could increase UK-GCC trade by 16 percent.

Demonstrating the importance of this deal, Trade Secretary Jonathan Reynolds and Trade Policy Minister Douglas Alexander made the Gulf their first joint international visit last September. Their commitment was further reinforced during the government’s International Investment Summit in October and Prime Minister Keir Starmer’s December visits to the UAE and Saudi Arabia.

The GCC is a natural partner for the UK, given their decades-old ties in trade, investment, and diplomacy. Bilateral trade stands at approximately $65 billion, making the Gulf the UK’s fourth-largest trade partner. Initiatives such as 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 a strong foundation for deeper cooperation in key sectors, including security, development, and investment.

Trade negotiations come at a strategic moment, as both the UK and Gulf states prioritize investment in shared areas of interest such as fintech, artificial intelligence, digitalization, and renewable energy. These alignments open new avenues for collaboration, allowing both sides to leverage expertise and best practices.

Once established, the FTA will ease the movement of talent, expand British companies’ access to the fast-growing Gulf market, and offer Gulf consumers a wider range of goods and services. Additionally, a strengthened trade framework is expected to enhance investor confidence in both regions and could provide a much-needed boost to the London Stock Exchange by attracting Gulf-based listings.

However, delays in finalizing the agreement are likely, given that the GCC is not a unified economy—each member state has distinct priorities and varying degrees of engagement with the UK. Smaller economies such as Bahrain and Oman stand to benefit significantly from the deal. The UK is already Oman’s largest foreign investor, with over $5 billion in investments and nearly $1.5 billion in exports in the past year. A Gulf minister familiar with the negotiations has attributed delays to internal challenges within the UK government.

In parallel with the FTA talks, the UK is pursuing bilateral agreements in strategic sectors to support its economic recovery. This month, the UK announced plans to sign a critical minerals cooperation agreement with Saudi Arabia at the Future Minerals Forum in Riyadh. This deal aims to secure long-term access to essential minerals such as copper, lithium, and nickel, which are crucial for electric vehicles, smartphones, and AI data centers.

The UK is increasingly relying on international partnerships to drive its economic recovery, and a strong UK-GCC FTA could be instrumental in this effort. Increased exports and investment would not only create jobs and stimulate consumer spending but also reinforce the UK’s diplomatic and strategic presence in the Gulf.

As part of its broader strategy, the UK has sought to bolster its role in regional security, evidenced by its recent accession to the US-Bahrain Comprehensive Security Integration and Prosperity Agreement. Additionally, the government is expected to prioritize Gulf security cooperation in its upcoming strategic defense review.

At a time of heightened geopolitical uncertainty in the Middle East, finalizing the FTA would cement UK-GCC relations. However, given the strong global competition for partnerships with the Gulf, prolonged delays in securing the agreement could weaken the UK’s position in the region.