Nothings kills a market than uncertainty… and we’ve got lots of that in the UK following the referendum in June 2016 to leave the EU and the abject failure of the Conservative party politicians to deliver it. I want to share some of my research on IT and communications spending to show the result in this important part of the UK economy. My Figure above shows the growth rate of spending between Q2 2016 (when the referendum took place) and Q1 2019.
Since 2000 there have been two serious devaluations of the Pound in relation to the dollar; the first was a controlled drop following the Credit Crunch, which allowed the UK economy to survive better than many countries in the Euro zone. Having reached a plateau of around 1.6 dollars to the pound in the period between the second half of 2008 and the end of 2014, the Pound was already dropping when the Brexit result was known in Q3 2016; however the fall since then has not only been dramatic (taking its value to the lowest points in history), but it has also been uncontrolled… and will remain so until the UK government decides when and how it intends to leave the EU, or decides to stay.
The UK market for IT and communications was worth £237b in the year to the end of March 2019 and all industry sectors spent less, apart from Transport/Communications/Utilities, which spent 1% more in Q1 and was level on an annual basis. I expect spending to continue to fall until the uncertainty of EU membership remains.
I have developed 4 forecast scenarios for the UK depending on the way in which we decide to handle the Brexit decision. In particular:
- Remain – even if we decide (against all current odds) to stay in the EU, the UK has already lost much of its reputation for innovation and internationalism, reducing the amount manufacturing, finance and retail and other sectors will spend on ITC; nevertheless this is the ‘least worst’ scenario of the four, with spending eventually exceeding the 2017 total in 2025.
- Deal – if the UK and EU agree on how to leave at the end of October (again – highly unlikely given the Conservative party’s decision to run a leadership election in the time arranged with the EU to redraw its exit plans) ITC spending will see a slow recovery.
- Delayed – if the UK continues to dither and once more extends the period with the EU to make a leaving plan, uncertainty will continue and a sharp fall in spending will follow.
- No deal – if the UK leaves at the end of October with no deal we’ll see a steep fall in spending initially, product shortages, higher prices as the Pound’s value plummets and a slow difficult recovery.
The UK parliament has become a laughing stock internationally as it continues to go through perhaps the greatest constitutional crisis since the Civil War in the seventeenth century. I have confidence that it may recover, but spending on IT and comms (which of course is only of tiny importance overall) will remain in the doldrums until a firm decision to leave in a particular manner, or to stay in the EU is made.
©ITCandor Limited – unauthorised copying of this content is illegal and will be rigorously defended by us through court action