Will The Economy Survive Brexit?

The economy is expected to slow as growth forecasts are revised downwards in the aftermath of the Brexit vote. But uncertainty is never welcomed by business as it struggles to understand the outcome of the referendum muddle.

Brexit uncertainty

Uncertainty about the economy has spread to cause unease in homes and firms, which has the effect of reducing the amount of money being spent.

Business owners are naturally cautious and any shock to the economy receives a negative response until the full impact is assessed and absorbed. 

Activity will slow as buyers and sellers wonder if they can buy or sell for less or more and play a waiting game in the hope of getting a better deal.

The high costs associated with house sales and purchases are likely to curb the market until greater confidence returns to calm fears and steady nerves.

Uncertainty about wages and jobs influences spending decisions as homeowners and renters worry about their ability to take on debt and pay everyday bills.

Wage bills typically account for a high proportion of a company’s costs and are one of the first areas to come under scrutiny when the economy stalls.

Similar concerns prompt householders to save rather than spend disposable income as a way to manage short-term shock and long-term planning.

Hope lies ahead

There is, of course, hope, as the financial system is sufficiently robust to withstand the Brexit challenge given the remedial work carried out since the last financial crash.

Seeing, however, is believing and this time households and businesses are taking a prudent approach until they see convincing evidence of a recovery.

Businesses are likely to be cautious, however, as staff recruitment is held in abeyance until a more knowable environment emerges from the confusion.

Given the challenges facing the economy businesses will hold back on investment, hold down wages and correspondingly increase cash reserves to prepare for future growth opportunities.

The supply of finance, ironically, continues to be plentiful as traditional and new models of credit and lending use technology to tempt borrowers.

Growth nevertheless is expected to be modest, at best, as businesses and everyday consumers understand what is likely to happen next.

Global growth is a little better as the United States, China and emerging markets slow at a slower rate, which is as positive as it gets in an immediate post-Brexit scenario.

But economies and businesses are resilient and when faced with shocks in the past have proven their ability to recover and flourish.

This time, however, it is worth considering how the economy should be managed and what type of economy is needed to serve all sectors of the population.

So, commentators of all hues are guessing what will happen next but the only practical prediction at this stage is more uncertainty until a new post-Brexit economy emerges.