In comparison to the constant angst and turmoil in the rest of Europe, the U.K. would have to be described as good to tolerable. The pound sterling has been rising along with the dollar, and the Bank of England has not felt the need to get radical with stimulating of late.
This is not to suggest, however, that all is well in Britain from an economic point of view. Parts of its population have seen precious little gain, and high unemployment continues. The latest iteration of the BDO business optimism survey does not point to an inspired or confident corporate community. The index dropped to 100 for the first time since 2013, and that surprised more than a few analysts given that most of the data recently have been OK. Few thought the mood was improving, and few thought it was going to get markedly worse.
The issues that put respondents in a sour mood are about what one would expect, but it came as something of a shock to see how disturbing these seemed to be. At the top of the list was the overall health of the global economy and growing concern over the status of the Chinese economy. Few businesses in the U.K., however, do all that much with China, and it is far from a major export destination for the British. It is certainly a source of imports, and that should have people in a better mood given the status of the pound. The British interact more with the U.S., and that market has remained more or less viable. Europe is always the most important export market, and the financial issues there have been serious to say the very least.
For the most part, the worries that have affected the British business community are the same as those that have affected the rest of the world, but there is one factor that is unique to the U.K and has had much to do with the community’s nervousness. British ambivalence toward the EU is up for debate again, and many people are really worried about whether the U.K will stay in the European Union.
The “Brexit” is not something motivated by economic failure and a desire on the part of the other members to force withdrawal as the “Grexit” promised to be. This is not Greece; this is the response of a country that has never been totally convinced it should be engaged heavily into the matters of Europe. The EU is generally viewed as a European invention and one that interferes with Britain far more often than it helps. The refusal to join the eurozone was motivated by this British suspicion; and over the last few years, it has appeared this decision was a good one. Will Britain vote to leave the EU in the referendum? Most assert the vote will be close, but that the U.K. will stay engaged, but there is enough doubt that the business community is worried that such a move would be damaging to the economy
- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence