Brexit fog thickens...

Wednesday 20th September 2017

Brexit fog thickens as Britons rethink their future over Europe.

As millions of Britons return from their summer holidays in Europe, most will have experienced the weaker purchasing power of the pound and the increasing confidence among EU countries.  Compared to the heady days of summer 2015 when £1 was worth around 1.4 euros, this summer’s visitors were likely to get 1.1 or fewer euros for £1.  While the cheaper exchange rate has benefited exporters and seen stronger manufacturing output since Brexit, in part a strengthening and more confident Euro-area economy will have helped exporters’ order books which may be at risk from a ‘hard’ Brexit.

The monthly European Commission Economic Sentiment Index (ESI)* across the Euro-area over the past year is up from 104.8 to 111.9 (August 2017), its highest level in more than 10 years; the UK’s measure has also increased from 104.5 to 109.6, but it is below both the Euro-area and the overall EU ESI (also 111.9), and well down on its record high of 119.1 in June 2014.  The mood among euro-area consumers has also improved, contrasting with a fall in confidence among UK consumers.  Compared to a year ago euro-area confidence in August is up by 6 points to -2 (its best score since 2007) while UK consumer confidence** is down 5 points to -7.

Across the Channel in France there has been a big jump both in the ESI (up from 101.8 to 110.6) and in consumer confidence, up from -13 to -4 in the past 12 months.  Bringing the Olympics to Paris in 2024 will add to the positive mood of change with a new generation of leaders taking control.

In financial markets, despite the relative strength of the euro, the major European stock markets have outperformed the FTSE 100 over the past year.  As the European Champions League and Europa League get under way bringing hundreds of millions of Europeans together this autumn, in the UK the ‘will of the people’ ( a minority of 17.4 million adults from a population of some 51 million) is being enacted to bring about divorce from the 27 other members of the European Union.  Brexit means Brexit despite public opinion across Europe according to Pew Research Centre research in June strongly believing that leaving the EU will be bad both for the UK and Europe.

On Monday 11th September The Times headline was ‘Britain is sick man of Europe’ raising concerns about the state of the nation’s health and life expectancy compared to other EU countries.  With the airwaves being filled up with incessant political debate about the Brexit process and the quality and vision of the nation’s elected leadership what is the attitude of the public towards Brexit and how has it changed in the past year?

Economic uncertainty is undermining confidence

Following the Referendum vote to leave the EU, both consumer and business confidence plunged as the result was unexpected. A GfK poll for JGFR in May 2016 found that 54% of the public expected the Remain vote to win and only 32% believed the Leave vote would win. 

Such an electoral shock came after a record year for consumer confidence in 2015, when every month was positive, and but for the Referendum, likely to have continued in a positive manner for much of 2016, with only a likely rise in bank rate on the horizon to dent sentiment.  

Prior to the Referendum In June 2016 consumer confidence slipped into negative territory (-1), then slumped by 11 points to -12 in July 2016, a record monthly fall.  The swift reaction by The Bank of England reducing bank rate and increasing quantitative easing (QE) helped steady markets and boost confidence in August, when the Rio Olympics also helped to take the public’s mind away from Brexit.

Often in a crisis people turn to retail therapy; when credit is made more available consumer spending increases. Autumn 2016 saw a big take up of credit with car purchases particularly strong and GDP growth turning out much better than predicted, vindicating many who questioned ‘Project Fear’.

The mood of the consumer improved with consumer confidence returning to its pre-referendum level of -1 in September 2016 boosted by a jump in the spending climate measure and greater optimism about the economic situation.

Since October 2016 the immediate Brexit-induced optimism has dissipated, with consumer confidence falling back to -12 last July, equalling the immediate post-Brexit measure. Worries over the economy and more caution on spending, despite relatively strong household finances helped by a buoyant jobs market, have made consumers more uncertain and pessimistic - Figure 1.

The relative optimism a year ago was greatly welcomed by the supporters of Brexit, keen to show that Project Fear was wrong. JGFR commissioned research from GfK in September 2016 found that 49% of the public believed’ Brexit meant Brexit’ but among the over 50s (especially retired over 65s) 62% agreed with the statement.

Confidence among the over- 65s last October turned positive for the first time since the Referendum (+1), well ahead of confidence of the 30-49 (-6) and 50-64 (-11) age-groups. Since the optimism last October there has been a notable change of mood among the over- 65s. While overall confidence has fallen by 7 points to -10, among the over 65s it is down by 17 points to -16.

The latest JGFR research commissioned from GfK finds that fewer people now believe ‘Brexit means Brexit’ (28%, July 2017 vs 49%, September 2016), with the biggest fall among the over 50s, down from 62% to 34%; whether this genuinely means that more people believe that the Brexit process will unravel and a deal conceived that is close to remaining an EU member, or reflects more people disillusioned / bored with the whole Brexit process (exacerbated by the general election) or that the statement does not need an answer as Article 50 has been triggered, is unclear. The hung Parliament following the general election may be another factor increasing uncertainty about Brexit.

Following the Pew Research Centre report that showed a marked rise in Britons with favourable views of the EU over the past year, the latest JGFR/GfK data also suggests a shifting of the public’s attitude towards Brexit.

A majority of the public accept the Brexit vote

One year on a majority of the public now accept the Brexit vote, although only around 60% of the public expressed a view. This compares with a question in February before the triggering of Article 50 when the public was asked whether the vote to leave the EU was the correct one or whether it was the wrong one. Then, three-quarters of the public had a view, with 40% of adults of the view that the vote was the correct one, and 35% who believed it was the wrong one - Figure 2.

Overall 38% of adults accept the vote to leave the EU compared to 20% who do not accept the result. One of the biggest differences is by gender with 44% of men accepting the vote compared to 33% of women.

Among young people (under 30s) there is an equal number accepting and not-accepting the result; among students only 18% accept the vote to leave and 41% do not accept the result.  Many of this age-group will not have been able to vote yet will have to adjust to the new Brexit world. The over 50s, the retired and outright owners are the most accepting of the result, many of whom will be one and the same.

A notable effect of Brexit is that it has brought about increased divisions in society especially between young and old, between the sexes, by educational attainment and across the country.

All regions apart from Scotland have a majority accepting the vote, including London and Northern Ireland, which along with Scotland believed the vote to have been the wrong one last February. Regionally most acceptance of Brexit is in the Midlands (especially the East Midlands) - Figure 3.

Public support for staying in the Single Market

Much debate surrounding Brexit since the triggering of Article 50 has been on negotiating a hard or soft Brexit. Remaining in the Single Market is regarded as a soft Brexit; a deal negotiated to continue membership of the Single Market means free movement of labour, currently unacceptable to the government but of appeal to a large number of businesses dependent on EU workers and to international companies using the UK as the gateway to a European market of some 500 million consumers.  It would also enable the UK to continue moving towards a Single Market across the services sector, the major driver of the UK and EU economies, and to complete the vision set out by Mrs Thatcher.

As Parliament debated the ins and outs of the UK’s relationship with the EU in the run up to triggering Article 50 the public were asked whether the UK should stay in the Single Market or should leave the Single Market.

Just over half the population (54%) had a view, suggesting that despite extensive media coverage many people were not interested in the mumbo-jumbo of bureaucratic trade technicalities.  A minority of adults (30%) believed the UK should stay in the Single Market, while slightly fewer (24%) believed the UK should leave the Single Market.  Both sexes and all age groups, apart from the over 55s, believed the UK should stay in the Single Market with higher earners especially supportive of staying in (43% vs 23%, leaving) - Figure 4.

Compared to February all regions show a majority of respondents believing the UK should stay in the Single Market, apart from Northern Ireland, where a massive U-turn has occurred.

Many, including leave voters, may have been swayed by the arguments in favour of staying in the Single Market, especially where jobs may be at risk of businesses re-locating to Europe.  As in February Scots are the most in favour of staying in the Single Market followed by Londoners and people living in the North West.

All workers and the unemployed are strongly in favour of staying in the Single Market as are a half of students and higher earners. Only the over 50s, skilled manual workers and people leaving education after GCSE’s/O levels are more in favour of staying outside the Single Market.

People believe they / their families will be better off in the EU

At the heart of the Remain campaign were detailed financial forecasts highlighting how much worse off the public would be should a vote to Leave the EU succeed. In January 2016 JGFR-commissioned research from GfK found 35% of the public felt they / their families would be better off financially staying in the EU, while 28% believed they / their families would be better off financially outside the EU.  Over a third of adults (37%) had no view, with a higher proportion of women (45%).

Fast forward to last February when the same statements were made during the debates leading up to the Article 50 vote.  Awareness of the likely impact of Brexit on household finances had become confused in the claims and counterclaims of the Remain and Leave campaigns with the economy performing better than many economists predicted.  

Only 36% of adults had a view, down from 63% in January 2016 with 20% believing they /their families would be better off and 16% believing they would be worse off, a net balance of 4% believing they would be better off financially staying in the EU, down from 7% in the previous January - Figure 5.

In July the same two statements on household finances were put to the public with more people believing they would be better off staying in the EU (24%) than in February, and fewer believing they would be better off outside the EU (10%).  Across all consumer segments there was a net balance believing they would be better off in the EU with the highest net balances among students (39%), university graduates (29%), the under 30s (28%) and ABs (22%).

All UK regions believed they / their families would be better off inside the EU, with both Yorkshire/Humberside and the East of England shifting position to ‘better off’ in July.

Conclusions

With the need for strong leadership to deliver a new and special relationship with the European Union, the evidence from the public is that now is the time to reach out to unite both the UK and the European Union to an arrangement that recognises changes need to be made that will safeguard the prosperity and security of citizens of the UK and the EU.  A hard Brexit appears no longer on the consumer agenda in the UK or in Europe.  An arrangement based around continuing access to the Single Market is.

Notes:

The July survey was commissioned by JGFR from GfK among 2,000 adults aged 16+, representative of the UK population between 1-21 July 2017 and undertaken online.

*The Economic Sentiment Index of the EC is a composite measure bringing together services, industry, construction, retail trade and consumer confidence measures

**Consumer confidence as measured by the EC differs from the UK measure published by GfK, although both use the same consumer survey.

The former uses four forward measures of unemployment, saving, the general economic situation and personal finances. It is also seasonally adjusted The JGFR Feel-good Index uses 4 forward measures from the GfK survey of unemployment, inflation, personal finances and the economic situation which further reflects the downbeat mood of the nation in recent months with little cheer in prospect - Figure 6.

Contact: John Gilbert +44 (0) 7740 027968 j.gilbert@jgfr.co.uk @JohnGilbertJGFR