Over the past couple of weeks following the referendum, my daily interactions with the good folk of the United States have changed.
They’re still friendly with plenty of warm banter about cute accents and whether I’ve met the Queen, but a more serious tone has now been injected.
News of Brexit has reached the ears of the American populace and they are extremely interested in the matter.
That everyday Americans are following events means that Brexit will influence consumer psychology over here in a way that many occurrences elsewhere in the world fail to do.
This impact is already showing up. Our monthly poll of consumer sentiment, taken after the referendum, indicates a sharp rise in negativity about the future of the American economy. This breaks the trend of flat-to-improving confidence over the past half year.
Some of this could be related to splutterings in America’s economic recovery, but the link to Brexit is clear. Almost 41% of Americans said they expect the UK’s decision to have a negative impact on the US economy over the next six months.
Given the turmoil on global markets, including the various US exchanges, such a view is unsurprising. While American shoppers are more insulated from the fall-out than their UK or European counterparts, Brexit has added further uncertainty to an already uncertain US consumer mindset.
However, as history shows, perceptions of what may happen are not always the same as what does happen. This is not to say that perceptions aren’t important. They are, especially when it comes to consumers who base spending and buying decisions on how they feel. But perceptions can prove to be unfounded.
“While the implications for US consumers might be benign, for US retailers with exposure to the UK high street – Walgreens, Walmart and TJX among them – they are less helpful”
With regard to the American consumer this is an interesting point – for, putting market turmoil to one side, the early implications of Brexit are paradoxically more helpful than hindering.
First, the decision to leave has stayed the hand of the Federal Reserve in raising interest rates – something that has been a major drag on confidence and which, as evidenced at the end of last year, moderates spending. Secondly, aided by a supply glut, Brexit has put downward pressure on gas prices – always helpful to the American consumer. Thirdly, the stronger dollar will generally be deflationary, helping to keep consumer prices down.
These things are less visible than the wild swings of markets, so their influence in shaping consumer views is weak. However, their impact on what people actually have to spend is much more significant.
Ups and downs
Within these shifting dynamics there’s also something positive for the UK: tourism. The fall of sterling has led to an increase in the number of Americans thinking about taking a vacation in the UK. Data from our polling suggests visitor numbers could rise by as much as 6% over the next 12 months – a small percentage, but of a very large number who spend billions.
While the implications for US consumers might be benign, for US retailers with exposure to the UK high street – Walgreens, Walmart and TJX among them – they are less helpful. The stronger dollar was already depleting growth from their overseas operations, and will now do so all the more.
As much as the near-term impacts of Brexit are now emerging, the longer-term consequences are impossible to predict. With momentous events this is always the way.
Following the American Revolution, George Washington did not expect the United States to survive for more than 20 years. Yet on Monday we celebrated our 240th birthday. Despite his pessimistic prediction, Washington did something that now stands as good advice to us all: he shaped and managed events, rather than simply being swept along by them.
- Neil Saunders is the managing director of Conlumino