There’s been a slew of barely-worth-reading media articles outlining how the UK economy has kept up surprisingly well in the face of Brexit.
The response in other parts of the media, and on social media, has been harsh and predictable. Paraphrasing, it goes:
D’uh. We’re still in the EU. Theresa May hasn’t invoked article 50. The shit is yet to hit the fan.
I think that point makes sense on some level. But it strikes me as firmly first order thinking. It unavoidably assumes that consumers and companies are not anticipatory. That it’s logical that they’ll go on with their merry former ways until such day as May drops the bomb or even until the UK actually departs the EU a few years later. It assumes that the smug tweeter knows something—that the excrement will soon meet the fan—that is lost on all those hapless consumers and companies.
Here’s what we expected after the Brexit referendum got up. We expected consumer spending to drop sharply, we expected business investment to drop sharply. Thus we expected a recession fairly promptly, despite the fact that pulling out of the EU was a way off.
Early numbers good
So the strong consumer spending numbers released in recent months have been a surprise to us. We won’t see reliable business investment data for a while yet, so we’re unsure where that stands. Our expectation is still for a drop off, but perhaps we’ll be wrong there too.
There are certainly pockets of obvious weakness. We’ve talked with several realtors in recent weeks. Housing transaction volumes, in London in particular, dropped off a cliff post-referendum and haven’t bounced in the slightest yet. In the realtors’ telling, buyers are demanding a 10-15% discount as a result of the impending Brexit. Sellers generally won’t give it to them. It’s going to take a while for the two to meet, probably at prices somewhere in the middle. Share prices of UK real estate agents are back at or below their late-June lows.
But, all up, I’m surprised by the resilience of recent economic numbers. They’re very early. They might mean nothing. Brexit hasn’t happened yet. We don’t even know what form Brexit will eventually take. The odds are increasingly moving towards a so-called hard exit. But consumers and companies aren’t daft enough to have missed that it’s lurking up ahead.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.