In Uncertain Times Equities Are Only Part Of The Story

According to several consumer confidence trackers, sentiment has dived sharply. Should we be worried? Brexit supporters are enthusiastically pointing to the FTSE100, which has shown significant gains over the past few weeks. It seems that despite the pessimism of many in the vote leave camp, city investors remain bullish towards blue chip equities.

The continued upward trajectory of the FTSE 100 should come as no surprise. The fall in sterling has sharply increased the projected profits of FTSE100 companies, which derive the majority of their income from outside of the UK. The ability of big business to weather the post-Brexit storm does not reflect the economic stability of the UK.

In many developed economies it is consumer confidence that remains the pivotal metric of economic health. Many businesses rely heavily on consumer spending. One only has to look at the recent and sudden volatility of projected UK advertising spend to see early signs of a downturn.  Nowadays it is a short leap from changes in consumer confidence to shifts in business sentiment. The internet has enabled business decision makers to become cognisant of confidence indicators which are increasingly available at little or no cost.

Following the Brexit result, we see sharp falls in business and consumer confidence. Everyone is nervously awaiting the consequences of the leave vote. Such anxieties should come as no surprise. We have been exposed to weeks of dire warnings from both the leave and remain camps. Gove’s espoused beliefs that experts are not to be trusted were in hindsight misguided. The experts were right all along. Uncertainty has driven sentiment which has, in turn, precipitated an immediate recalibration of business planning and investment. A downturn now appears inevitable.

With sensitivity to economic data at an all time high, how should those responsible for disseminating such information act? Politicians, business owners and journalists have a responsibility to be judicious in their public commentary. Barometers of the UK’s state of health should be transparent and considered. Knee-jerk panic should be avoided at all costs.

We have been here before. Sometimes downturns had at their heart structural changes in the economy. Other times it is sentiment driven. However this time, overall initial signs are worrying. A slump in demand for property falls in advertising revenue, and a drop in consumer confidence do not bode well.

Occasionally consumers react to bad news by indulging in treats, seeking solace in low-risk indulgences to deflect anxieties about the future. Others meanwhile turn to more substantial sources of support, such as anti-depressive medication or increasingly turn to psychotherapy.

As we move forward towards with hopefully an orderly exit, economic data will continue to take centre stage. It will not only be the fund managers and City investors that take an active interest. We are all post-Brexit citizens now. Many of us will feel increasingly drawn to monitoring, evaluating and discussing every new item of economic data. In doing so, we will be hoping to reduce our uncertainty and improve our feelings of confidence in the future.