What's going on?
Blimey! A survey of British people’s confidence in their economy conducted in the aftermath of the Brexit vote showed the biggest drop in confidence in 22 years. The question now is how much the lack of confidence will hurt real economic activity.
What does this mean?
In the past few years, economic growth in the UK has been ok: it’s not quite managed to do as well as the US but it’s been better than Europe’s economic growth. Much of the strength has been driven by things like consumer spending, e.g. shopping or Brits eating out in restaurants. However, the economic uncertainty created by the Brexit vote has evidently put a big dent in British people’s confidence in the economy – which tends to be reflected in real-life decisions like staying home on a Friday night or not buying that new laptop. It has the potential to be a self-fulfilling prophecy: a nervous attitude leads to less spending which leads to a weaker economy that justifies the initial nervous attitude.
Why should I care?
For the markets: We’re about to get some early evidence as to the Brexit vote’s impact on US stocks. Over the coming weeks, virtually all US public companies will report on their earnings for the most recent quarter. During such reports, it’s normal for companies to give forecasts of what they expect for the coming 6-12 months. It will be interesting to see how many companies, if any, say that Brexit could have a materially negative impact on their future profits.
For you personally: It’s OK to be nervous and hopeful at the same time. Britain is facing an acute economic test that will likely last for at least several years. It is exceptionally difficult to predict the overall impact given that the way forward depends to a large extent on the political agreements that Britain will make as it exits the European Union. There is almost certainly pain to come for the average British person, although some of the best long-term opportunities are borne out of market selloffs and economically challenging times.