Brexit and Uncertainty: Insights from the Decision Maker Panel

Abstract

The UK's decision to leave the EU in the 2016 referendum created substantial uncertainty for UK businesses. The nature of this uncertainty is different from that of a typical uncertainty shock because of its length, breadth and political complexity. Consequently, a new firm‐level survey, the Decision Maker Panel (DMP), was created to investigate this, finding three key results. First, Brexit was reported to be one of the top three sources of uncertainty for around 40 per cent of UK businesses in the two years after the vote in the June 2016 referendum, and this proportion increased further in Autumn 2018. Hence, Brexit provided both a major and persistent uncertainty shock. Second, uncertainty has been higher in industries that are more dependent on trade with the EU and on EU migrant labour. Third, the uncertainties around Brexit are primarily about the impact on businesses over the longer term rather than shorter term, including uncertainty about the timing of any transition arrangements and around the nature of Brexit.

Immigration, uncertainty and macroeconomic dynamics

“…8 Note that for the UK data span the period 1990:Q1-2015:Q4, that is the post-Brexit period is excluded from the analysis. This choice is motivated by the irrational level of uncertainty lying in the aftermath of the referendum in the UK (Bloom et al, 2019), which could undermine the statistical validity and the economic interpretation of the results.…”

The effect of the Brexit Referendum Result on Subjective Well-being

“…'Policy uncertainty indices', based on media reports, suggest that uncertainty negatively affects investment and consumption (Baker et al, 2016). Such an index rose to unprecedented levels in the United Kingdom following the Brexit vote, above the levels reached during the recent financial crisis (Bloom et al, 2018). The multifaceted implications on Brexit (e.g.…”

Prospects for the UK Economy

“…According to the Deloitte CFO survey (2019), 58% of Chief Financial Officers consider that the current level of uncertainty affecting their businesses is either high or very high, which is the highest reading since the summer of 2016. Bloom et al (2018) estimated that the increase in uncertainty led to investment being 6% lower than otherwise predicted. Faced with the risk that a disorderly Brexit might create disruptions to their businesses, business leaders are currently more focussed on stockpiling than investing in the future.…”

“…Planned investment projects have been deferred, cancelled or moved abroad. Bloom, Chen and Mizen (2018) estimate that Brexit-related uncertainty was associated with around 6 percentage points less investment growth in the two years following the EU referendum. Breinlich, Leromain, Novy and Sampson (2019) estimate that the number of new investments made by UK firms in European Union (EU) countries is 12 per cent higher than it would otherwise have been.…”