Four years ago, I contributed to this International Business Times article on Brexit. The impoverished reporter, Moran Zhang, is now a highly paid equity analyst at a Boston asset manager. Life is good.
Unlike most forecasters, I am willing to be intellectually honest about my predictions!
#1 I suggested that there was a 70% chance the UK would be still in a reformed European Union. That reform hasn’t discernibly arrived, and from Wednesday, Britain is formally leaving.
#2 I suggested there was a 25% chance the UK would be part of the “outer rings of the European Union”. That will almost certainly be the end-game in some shape or form.
#3 I suggested Brexit would be a process, not an event. There would be no zero cut-off, which is exactly what is happening. The UK will still have commitments after the formal exit date, which it must or wants to keep, for example, security cooperation.
Where Are We Today? A 20% devaluation against the USD, a more attractive export environment, a stock market near all-time highs and near record low interest rates. Signs of inflation increasingly present in the food we buy at the local stores. By almost all measures, we remain in a largely attractive environment for inwards investment, consumer confidence, albeit productivity improvements are slow to feed through and personal debt levels remain high. There remain sharp geographical distinctions. A city state in London that has abundant foreign wealth slushing around, albeit not so much into £10M+ prime residential property but still seeking a home in private equity via funds or increasingly direct investment. A robust jobs market. In comparison, some of the provincial towns and particularly in Victorian seaside resorts, where prospects for commercial businesses and the local population are less rosy. High streets (or Main Street, as my American friends love to refer to it), is symbolised by abundant charity shops dispersed between closing down sales. Little or no meaningful investment into new economies and new careers. There is a visible political, economic and social divide.
Where Are We Headed? Does anyone really know? Of course not but that doesn’t stop us hazarding a guess. We are in for a minimum 18 months of fraught negotiation, where I think those in the strongest position (Germany) will push the case for a fair settlement with the UK and those in the weakest position, will stubbornly resist (France, Italy, Spain). Politicians will think with logic and act on emotion. Traditional enmities and grievances will be magnified. Leaving is not going to be easy for those remaining in Europe and the UK. Fault lines already visible in the UK, will become more adversarial. We have to learn not to take what others say literally but to take them seriously. That applies to those outside the political bubble, investors, businesses and those directly affected by the political decisions. It is a boom time for patient private capital that can look beyond the immediate volatility.
Life after Brexit for the UK, is also largely dependant on the speed and quality of the trading alternatives. Can the UK create or rather build powerful interfaces with non-EU members to attract abundant sources of capital, people and innovation? Can it manage that process while adhering to the need to control immigration? Probably so. The UK’s future relationship with US, China, India, Canada and so on, has two forks the public (trading agreements) and most importantly, the private sector, the ability of UK SME and mid-market firms, the largest net jobs creators, to open new foreign markets, to attract new sources of capital, to spur new innovation not simply solve existing problems and so forth. The headlines about large global employers shifting jobs are far less significant, yet the media doesn’t portray that story.
The real story is the skills, behaviours and experience each of us has to thrive in that environment. What are we going to do about it? What are we going to push our employers, employees and investors to do about it? What has got us to where we are today, is in all likelihood going to be insufficient in a post-Brexit UK.
My prediction is that in four more years, 2021, there is a 70% chance the UK is in a more prosperous position than we are today. I think there is a 20% chance that we are in a mildly negative position (period of extended sluggish growth). A 5% chance that we are in a disastrously worse position (serious recession, sharp contraction in spending).
I didn’t vote for Brexit but now we are where we are today. Private polling has shown that there is a “silent majority” (former “Remainers” and “Brexiteers”) determined to make a success of their lives. There will of course be the “Victims of Brexit”. Those who will link the decision to leave the EU to their current and future woes, while consciously disregarding their failure to personally reinvest in their own skills, behavioural traits and experience. Those, who absolve themselves from personal accountability for the decisions that are within their control.
Let’s regroup in March 2021!
© James Berkeley 2017. All Rights Reserved.