Theresa May’s claim from the distant history of July that ‘Brexit means Brexit’ has already become famous for answering nothing about the uncertainties facing the UK other than the government proposes to ultimately leave the EU.
Welcome to the uncharted waters of modern British politics – a claim often made but usually untrue. I don’t even follow the logic of those claiming Brexit is inevitable – you can as easily imagine an EU departure abandoned entirely as ending up with a hardline exit. There is nothing binding about the mandate – the public has had their say, but probably not their final say. No commitments – including indications from Downing Street that article 50 will not be triggered until well into 2017 – clear up the point.
So while you cannot answer the big questions about Brexit and the economy, here are some thoughts that may resonate with managing partners. Firstly on the economy, the debate has split between those that see Brexit as very bad or very good. I strongly suspect it will end up as neither and here is my argument why.
Large economies do not suddenly lose their positions overnight. The UK will have a lot of time to adjust and take advantage of opportunities to offset reverses. The assets of London as a global city and finance hub have been built for decades and will not suddenly disappear even before you get into the absence of an obvious rival in Europe. Pragmatic policy considerations will also have a huge impact in watering down major changes. Supposedly temporary fixes become permanent, and you constitutionally muddle through.
On balance Brexit looks bad for the British economy – that uncertainty hits investment is a demonstrable phenomenon – but my instinct is that sky will neither fall nor perpetually shine. That view – subject to very regular updating with changing facts – is the basis that law firm leaders should operate on.
The end of October will be the time for managing partners to make some calls.
In terms of short-term economic impact, we will have to wait for the next two months to gain some sense of how this is playing out. Current signals are that business spending has been hit, while consumers keep going. However, the unusual nature of this process means figures will be heavily prone to restatement or prove to be exceptional swings. But by the end of October, law firms will have a better read on the trading outlook through to 2017 and at least some broad sense of the government’s agenda. Then will be the time for managing partners to make some short-term calls.
Ominously, as can be seen from our LB100 report this month, law firms have been struggling with a market in which they have barely beat inflation since the banking crisis. They don’t have a big margin for error and there are structural issues lurking.
Here is the wildcard to keep in mind. Policy in this country has been shaped by a particular kind of political stability bolstered by two large parties and the first-past-the-post voting system. That system is clearly faltering – if it breaks down much further it really is hard to tell where the chips will fall.
So what can you count on? Well, increasing distance from the EU strongly suggests the UK will tack closer to the US economy. Lack of credible US coverage was a big deal before 23 June. It looks an even bigger deal now.