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Waiting On The Big Brexit Effect


Image source: Giphy.com

What's going on?

“Business investment” is spending by businesses on things like machinery and buildings. It’s going to be a key variable in determining how well the overall UK economy copes with the Brexit-induced uncertainty. On Friday, new data showed that it held up well in the three months following the Brexit vote – but many economists think that it will turn sour next year.

What does this mean?

Business investment increased 0.9% between the second and third quarters (remember, the Brexit vote occurred at the end of the second quarter). That’s a far cry from the plummeting spending that many said would occur in the event of Britain voting to leave the European Union. However, it’s worth noting that most of those spending decisions were likely made prior to the Brexit vote, and therefore this data might not be that reflective of the eventual impact. In fact, a big recent survey suggested that business investment has weakened since the end of the third quarter (although we won’t have the actual data until next year).

Why should I care?

The bigger picture: Economists are quite negative about next year – let’s see if they’re correct! (tweet this)
Most economists have, so far, gotten the impact of the Brexit vote wrong (if you want a reminder of a dire pre-Brexit prediction, click here). But the key qualifier in that statement is “so far.” Economists are predicting that the pain will arrive next year, as, for one, businesses cut back on their spending (and hiring) plans amid the Brexit uncertainty.

For markets: The weak pound is indicative of concern for the economy.
The value of the pound is a decent barometer of how interested people are in investing in Britain: if foreign investors want to invest in Britain, they must buy pounds in order to do so, which would push up the value of the pound. Since the Brexit vote, the pound is down significantly, which suggests investors are taking their money out – an indication that they think the economy will struggle.

Originally posted as part of the Finimize daily email.

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