Because we had survived the war intact we did not realise fully the motives or strength of the European search for unity. We underestimated the recovery powers of the continental countries and the great boost that could be given to their industrial development by membership of a common market. We overlooked one of the prime lessons of our own history, that we had been able to spearhead the industrial revolution in the eighteenth century, not because of our size—we only had a third of the population of France—but because, at a time when the countries of the continent were fragmented by internal tolls and tariff barriers, we were the biggest single market in Europe. We did not perceive fully how the Commonwealth would evolve and the reduced political and economic role that we would have in it. (For instance, we were taken aback when, in 1957, our proposal for a British-Canadian free trade area was turned down by Ottawa.) Continuing for long to believe that we had a unique part to play on the world scene because of our participation in Churchill’s three interlocking circles, we were concerned that too close a relationship with Europe would weaken our influence in the other two circles, those of the Commonwealth and America.

…

Whatever the reasons behind them, our decisions in these years undoubtedly had an adverse effect upon our economy. We continued for too long to try to play a world role and failed to cut our coat according to our cloth. The prime minister was saying as lately as July, 1965, that “our frontiers are on the Himalayas”. In consequence we were overextended financially and then when the realities of our economic weakness became inescapable we had to draw our horns in precipitously. By excluding ourselves from the organisations of the Six that drew up the Treaty of Rome we deprived ourselves of the chance of fashioning the organisation at the outset to suit our interests.

Britain’s decline; its causes and consequences
http://www.economist.com/node/13315108