During and indeed after the EU referendum much debate has centred on the reliability of the Brexit economic forecast provided by ‘experts’. The ‘remain’ camp backed by data issued from nearly all major national and international economic forecast organisations predicted a near collapse of the UK economy in the immediate aftermath. Yet, with the sole but important exception of the value of our currency, most current Brexit economic forecasts and data suggest a return close to pre-referendum normality. As such forecasts now suggest only a relatively mild disruption to our economy in the immediate future.
Should this be a surprise? Why did so many economists appear to make the wrong call? First of all I guess that the clues were in place ahead of the vote. We are repeatedly told by politicians, business leaders, financial institutions and economists that business and markets hate uncertainty and yet with the polls showing a degree of uncertainty ahead of the referendum there was no panic on the part of any stakeholders. Until the morning after the vote, it appeared to be very much business as usual. So should we really be that surprised that normality now seems to have returned and is it therefore the case that those who say business and markets hate uncertainty are wrong?
The answer I suggest is largely about timing. To explain further I believe that Brexit economic forecast was based on two assumptions:
1. Individuals make short-term behavioural changes in response to long-term uncertainty. The evidence of the past six months is that whether as business leaders or consumers this does not appear to be the case.
2. Forecasts assume that current rules will continue to apply and policy makers will not make major changes in response to new threats and opportunities. The abandonment of a Government policy to eliminate the budget deficit by 2020 and ‘emergency measures’ recently taken by The Bank of England demonstrate how the whole economic landscape can be changed, at least in the short-term.
It is the first of these to which I wish to return.
Logic dictates that leaving the EU single market to which we export 45% of our goods and services and membership of which stimulates foreign direct investment that creates thousands of jobs, would be hugely disruptive to our economy. At this point, it is well to point out the difference between access to the single market and being in the single market. Access to the single market is available to nearly every country in the world with varying degrees of tariffs applying. Being in the single market means not only being able to trade without tariffs but much more importantly it is illegal for countries to impose regulatory requirements on imported products and services to protect their own industries. Therefore although companies compete with each other within the single market, countries do not. Given that the single market has existed since 1993 the economies of all member countries have evolved with this certainty in place.
It is now very possible, indeed probable, that the UK will be leaving the single market within the next two to five years. So why are we not seeing a much more significant response in terms of consumer spending and business investment? To this question I believe timing is everything, the UK economy is hugely dependent on consumer spending and as intimated above, so long as we have secure jobs, can borrow money cheaply and lose any incentive to save (because of very low interest rates) and our spending power is retained by price increases being no higher than wage increases, we will keep spending.
Unlike consumers, business leaders are expected to apply more long-term planning to their decisions, however there is no reason in the case of ‘Brexit’ why there should be an immediate ‘knee jerk’ reaction. Leaving the single market is at least two years away and if the Government is unable to negotiate access to that market on terms acceptable to companies needing to trade on current terms, they will have time and probably big incentives to move their next phases of investment to the EU.
Finally, in regards to the Brexit economic forecast, is uncertainty the new norm? Geopolitics, technology and globalisation are changing so quickly that maybe all of us are just learning to deal with current issues and let the future look after itself!
Andy Milson, Head of Partner Training & Development at BNP Paribas Leasing Solutions
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on
07966 114 243 or email here.
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