New EU countries will have 'little impact on UK'

The UK economy is unlikely to be significantly impacted by the addition of 10 new countries to the European Union, experts said today.

The new members – Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia – are seen as too small in economic terms to have much impact on existing EU states.

They will increase the EU’s GDP by only 5%, equivalent to the size of the Netherlands.

John Butler, of HSBC, said accession would only enhance practices already in place, with UK firms shifting manufacturing to eastern European countries to benefit from cheaper labour.

“The net effect in the long term should be positive for the UK,” Mr Butler said.

“But in terms of the immediate short-term effect it’s hard to see how it’s going to have a big impact on the outlook for the UK economy.

“They’re small economies and at this stage it’s about EU enlargement, it’s not about them joining the euro.”

Investec economist Philip Shaw said the comparatively small size of the economies joining the EU meant that the UK’s major trading partners would still be in western Europe.

“Ten countries sounds like a big deal, and in political terms it is,” he said. “But in economic terms for the time being the impact should be relatively small.

“It will give UK companies greater access to new markets but for the time being these are still quite small.”

He pointed to migrating workers filling skills gaps in Britain and UK companies using cheap labour in the new countries, as benefits arise from the change.

HSBC research has pointed out that most of the formal trade barriers covering industrial goods were removed in the early 1990s, meaning accession itself does not make a huge difference.

Nor are eastern European economies likely to damage Britain, it found, as they generally do not compete in third markets against the UK.

Pessimistic reports predict migrants will “flock” to the UK to “steal” Britons’ jobs and milk the benefits system, but other estimates are far more modest.

Some studies have estimated that the flows of migrants from new EU members into the UK will be between 5,000 and 13,000 a year between 2004 and 2010.

An influx of relatively young workers is expected to have a positive impact, given that the UK labour force will age over the long term.

The CBI and the Institute of Directors, two of Britain’s biggest business groups, have made it clear that the UK economy is expected to benefit from “managed migration”, and there have even been warnings that a failure to take advantage of the opportunities would leave competitors with a head start.

CBI leader Digby Jones believes that under strict but fair rules migrants could make a real contribution to UK prosperity, and says a 1% increase in population through immigration could result in a 1.5% increase in GDP.

An extensive study by the Institute for Public Policy Research (IPPR) on how EU enlargement will affect labour migration concluded that “substantial” economic gains are likely.

Fears that when the new poorer countries joined the EU, the UK’s worst-off regions would lose out on handouts from Brussels have been allayed for now by European Commission proposals to let them retain their funding.