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Brexit: Who you should really be listening to

There have been mixed views on Brexit within the Conservative party (Christopher Furlong/Getty Images)
There have been mixed views on Brexit within the Conservative party (Christopher Furlong/Getty Images)

Hands up if you understand that the Brexit debate is important for the UK’s economic growth, job creation and wealth building but are frankly bored of all the rhetorical debate?

The issue which has dominated the political, economic and business debate over the last couple of years correctly should concern everyone thinking about personal finances. Whether that’s to anticipate pay rises over the next few years, deciding if you should buy a new house or car, indeed whether to chance your arm with that overseas job opportunity or start that small business you always hoped you would have the nerve to do so.

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The details around Brexit and its impact on the day-to-day UK economy matter, but with so little certainty despite time slipping away who to believe about the future?

The Treasury famously observed in some detailed scenario analyses before the Brexit vote that the UK economy would lose economic output equivalent to a bad recession if a ‘leave’ vote prevailed. So far the UK economy has collectively managed to avoid this outcome, although the Bank of England did help out by reducing interest rates further and pumping some more stimulus into the economy.

If you take into account figures out this week from the International Monetary Fund suggesting growth for the UK economy next year as well, is the biggest fear about Brexit fear itself?

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The trouble is – as that ‘70s popular hit put it – “you ain’t seen nothing yet”. If you really want to get a feel for the practicalities of Brexit then don’t look at the pronouncements of biased politicians or economic bodies with highly questionable track records on predicting anything. Who you should be looking at are those entities who are at the coal face of our economy: companies.

Three names over the last week strike me as providing a really good insight – although the key message is not what perhaps you might think at first glance.

The first has to look at has to be the UK’s largest food retailer Tesco who after some real business shockers a couple of years back has started to rebuild its profits and market share. It sees a future over the next few years where it can continue this process but continuing to drive efficiencies and cost savings up in an environment it still calls ‘uncertain’.

Tesco has started to rebuild its profits and market share (Jeff J Mitchell/Getty Images)
Tesco has started to rebuild its profits and market share (Jeff J Mitchell/Getty Images)

‘Uncertain’ was also a word used by defence company BAE Systems earlier in the week when they announced 2,000 job cuts in their military, maritime and intelligence services divisions. The issue? An order gap as hoped for work from the UK’s Ministry of Defence either was not happening due to cost cuts or had seeped to American peers.

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Meanwhile Domino’s Pizza cited ‘uncertainty’ in their trading update despite having achieved a bounce back in sales growth and clear optimism about the future aided by an advertising campaign which had pushed digital engagement sharply up.

So if the message from companies is uncertainty, but what’s the benefit of that? The value of their insights is that they have no choice but to get on with it. Politicians – even if they are facing election – always find it easier to criticise than provide answers, while academic economists can dust down a ‘revised’ forecast and go on as if nothing will happen.

(Jason Alden/Bloomberg)
(Jason Alden/Bloomberg)

So heed the style of Tesco and look for efficiencies in your lifestyle and spending just in case your general economic life gets tougher. Don’t make the mistake of BAE Systems and ensure your diversify your income sources if you can as it will help out in times of relative strife.

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As for Domino’s; like or loathe their take on the Italian classic, you have to admire their marketing campaign titled: ‘The Official Food of Everything’. Now if only grasping the post-Brexit opportunities and negating any threats could be given such a makeover.

In short, either munch on your digitally ordered pizza and hope for the best or get on and do something proactive. Good advice for the UK’s leading politicians of all parties too.

Chris Bailey has over 20 years of investment industry experience at long-only and long-short institutions as a global multi-asset fund manager, strategist/macro thinker and, in the earlier part of his career, as a securities and fund analyst.

In 2013 he founded Financial Orbit focusing on daily macroeconomic comment and securities analysis. In December 2016 his Twitter account (@financial_orbit) was named as one of the ’50 accounts investors should follow in 2017’.

The content on this page does not constitute financial advice and is provided for general information purposes only. Nothing on this page should be regarded as an offer to conduct investment business or to buy/sell any investments.

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