Budget Backdrop
With the Autumn Budget on the horizon Rachel Reeves has returned to a theme that had, for a time, receded from political discourse: Brexit. In recent remarks, including at the International Monetary Fund annual meeting earlier this week, the Chancellor has drawn renewed attention to the economic legacy of the UK’s departure from the EU. Whether this signals a wider strategy, a prelude to policy shifts, or simply economic context-setting, the shift in tone is notable.
Reeves now identifies Brexit as a structural factor behind several of the UK’s persistent challenges: weaker trade, higher food and energy prices, and labour market friction. In doing so she offers both diagnosis and justification, explaining why fiscal conditions are tight and difficult decisions may be unavoidable.
This isn’t an isolated move. The Bank of England Governor Andrew Bailey has also linked Brexit to weaker potential growth and rising business costs. Reeves’ comments reflect a broader shift in public discourse, with Brexit’s legacy increasingly seen as an ongoing cause of headwinds impeding economic growth.
The Business Secretary Peter Kyle has described Brexit as one of the major economic shocks of the past decade and hinted that future reforms could ease UK-EU trade frictions.
Politics of Economic Inheritance
The macroeconomic outlook remains challenging. Growth is subdued, public finances are under strain, and the Treasury’s options are narrow. Labour has ruled out a return to austerity, and major tax rises remain politically sensitive. Within that context Reeves is laying the groundwork for a budget involving trade-offs, using Brexit to help frame her limitations.
While not a primary motivation, it is likely that Labour is also considering how it protects its left flank from an increasingly vociferous Liberal Democrat and Green threat in urban and middle-class seats that have retained a strong “Remainer” sentiment in voter intention, with similar sympathies running across much of the Parliamentary Labour Party.
Recent polling from YouGov (June 2025) shows a majority of the public now believe Brexit has harmed the economy. This shift gives Labour space to adopt a more open, albeit cautious, tone.
Preparing the way for a Pragmatic Europe Strategy
Though Labour has ruled out rejoining the Single Market or Customs Union, this framing may serve another purpose: to lay the foundation for gradual, technocratic re-engagement with the EU. Moves toward regulatory alignment in sectors such as food, energy and chemicals may not be headline-grabbing but are politically significant.
Budget measures could also be shaped by this narrative. Positioning Brexit as a fiscal constraint justifies spending restraint or selective tax rises not as ideological choices, but as responses to inherited challenges.
Policy shifts may include closer regulatory cooperation or initiatives such as youth mobility schemes. These are subtle signals of a new direction, without triggering broader constitutional debate.
Risks and Reaction
Not everyone is convinced. A senior Government source was recently quoted in The Times as describing the renewed Brexit focus as “a gift for Farage”, warning it could reignite past divisions and embolden populist challengers. According to this view, the change in tone on Brexit could prove to be a double-edged sword.
For businesses, this emerging narrative signals a more stable, predictable policy environment and a possible gradual improvement in UK-EU trade ties. It reflects a shift toward economic diplomacy focused on regulatory alignment and targeted EU re-engagement offering a more pragmatic, growth-oriented post-Brexit approach.
A Calculated Narrative Shift
Reeves isn’t reopening the Brexit debate, she’s reframing it to contextualise fiscal constraint, manage expectations, and maintain party unity. This isn’t a return to Brexit wars, but a strategic attempt to make the departure from the EU part of the economic story and, potentially, a solution to the Government’s current political challenges.
