On the cover of the Hitchhikers Guide to the Galaxy, written in large friendly letters, were the words “Don’t Panic”. The words were meant to bring comfort to anyone faced with reading what was said to be an “insanely complicated” book.
The Short Term
In the aftermath of last Thursday’s referendum, with some of the possible permutations of what happens next perhaps seeming to be insanely complicated, we could do far worse than to take heed of these words. In fact, this was exactly the advice given by one of the most widely read financial writers on the internet, Martin Lewis of MoneySavingExpert. Responding to numerous requests, he offered the following advice:
“The most important thing to say to people is: ‘Don’t panic.’ Nothing has actually changed yet. There is time for things to play through. If nobody panics then there will be time to make the decisions, so the best thing to do is take a deep breath, keep calm and carry on.”
Is he right to say that nothing has actually changed yet? Politically, changes are happening so fast that it’s hard to keep up. But economically? Certainly there is much volatility, but the initial use of the word “collapse” by some broadcasters was somewhat over the top. The pound slid to a 31-year low, from $1.50 to the pound to $1.31, which is a big drop by any estimation, but it is not a collapse. As I write this, it has just risen to $1.34, whilst the FTSE 100 index is trading at 6,151 — less than 200 points down from its level on June 23rd, and far above the lowest point of the year, which was 5,536 back on February 11th.
The former Bank of England chief, Mervyn King, essentially offered the same message of not panicking as Martin Lewis:
“I don’t think people should be particularly worried, markets move up, markets move down. We don’t yet know where they will find their level and the whole aspect of volatility is that there is a trial and error process going on before markets discover what the right level of stock markets and exchange rates actually are. What we need is a bit of calm now, there’s no reason for any of us to panic…In 25 years’ time we’ll look back and say a little bit, that at least in economic terms, maybe that was a bit of a fuss about nothing.”
The Longer Term
As for the longer term, it is by no means certain that Britain will “leave the EU” in quite the same way that the question put to voters suggested. Several options are being mooted, but the increasing favourite appears to be the one mentioned by The Telegraph’s International Business Editor, Ambrose Evans-Pritchard, which is something akin to a modified European Economic Area agreement (such as Norway has), which would take us back “to pre-Maastricht rules that guaranteed only the right to work, before the concept of EU citizenship”. This particular option would also provide an impetus for cutting bi-lateral trade deals — something we haven’t done with any country for almost half a century — most probably with the US and Canada to begin with, but with plenty of scope for others, including the four big emerging markets, Brazil, Russia, India and China.
Whether this is what we actually end up with is anyone’s guess, but some of the signs coming out of the more powerful voices in Europe strongly suggest that it will be something like this. For instance, shortly before the vote, the Federation of German Industries, Bundesverband der Deutschen Industrie (BDI), said that it would be “very, very foolish” to impose tariff barriers or protectionist measures between the UK and the EU. Similarly, the most powerful European leader, Angela Merkel, has made it clear that there should be no attempts to punish the UK for this decision, instead calling for “working together to get the right outcome” — an indication that she is well aware that German industry, having sustained significant losses due to EU-wide sanctions against the Russian Federation, will not stand by and watch as barriers are placed in another crucial market.
What About Emsi and Our Data?
Away from the big picture stuff, what of Emsi and our data? One of the more obvious questions that our clients might raise is “how does your data demonstrate the impact of this decision?”
The first point to make is that it doesn’t, but the reason for this is that the decision has not yet impacted anything in the long-term. Just to reiterate what has been said above, what we have at the moment is short term volatility, but none of the fundamentals of the British economy has yet changed from before 23rd June.
Secondly, if and when Article 50 of the Lisbon Treaty is triggered and we begin negotiations, the process could take a minimum of two years, or possibly much longer if no deal is reached and both parties agree to an extension, or the deal does not receive consent from the European Parliament, or a qualified majority in the European Council. During this time, the UK would retain full membership status and still be subject to existing treaties and laws. This may well mean that we will not see significant changes to the economy for some time, at least until the shape of a future deal begins to emerge.
However, if and when real changes do begin to emerge, we are in a better spot to be able to track those changes than many other LMI providers. We update our data on an annual basis, using a variety of different data sets, most of which are released annually, and the crucial point to note is that our data is not based on Working Futures, which is updated roughly every three years, and which would therefore quickly become obsolete in a scenario where the UK economy does begin to undergo big changes. We do use Working Futures to check against our data, but we do not base our data upon it. This should give our clients the confidence that our data will be both more reliable and a better reflection of the actual state of the labour market than any other dataset out there.
How Can Our Data Help?
But let’s assume that Article 50 is triggered, and in the negotiations that follow we start to move to some sort of EEA relationship, perhaps with a modicum of control on immigration (there is a big question about whether such controls would actually be possible at all under this scenario, but for our purposes here, we will assume that this is so). What would this mean, and how can our data help?
Such a scenario would give a huge impetus for employers to think far more strategically about talent pipeline planning than they perhaps have tended to do up to now. It would also give a huge impetus for educators to work far more closely with employers to ensure that a pool of home-grown talent with the right skills is being brought through. And for economic developers, such as LEPs, it would mean putting in place measures that optimise use of available home-grown workforces, and sharpen the incentives for people to add to their skills (for anyone interested in further reading on what can happen when there is a reduction in immigration, this piece in the Wall Street Journal provides a helpful look at both the economic costs and the benefits to Arizona after the state legislature placed a cap on immigration).
In other words, in this scenario data could play a critical role in connecting people into work through education, reinforcing our core mission at Emsi, which is to:
Better connect the education, economic development and employment sectors together through the common language of labour market data.
To sum up, nothing fundamental has yet occurred to the economy of the UK. Short term volatility is not the same as long term trends, and we shall have to see what happens in the negotiations, if and when Article 50 is invoked. The most likely scenario (an EEA agreement) may not be substantially different to our current situation, economically speaking, and may even provide the incentive for the Government to seek to make bi-lateral deals with other countries, including the emerging markets.
However, if the uncertainty and the new deal(s) that are signed lead to a markedly changed economy, two things can be said of our data. Firstly, it will still be the most up-to-date and robust dataset on the market. And secondly, the need for educators, economic developers and employers to move closer together in order to ensure a home-grown talent pipeline will make the need for robust, granular data all the more necessary.
But above all, remember the words with which we began: Don’t Panic.