Online Shopping Driving Post-Brexit Recovery For UK Economy

July 1, 2016

There has been a great deal of uncertainty in the UK market since the referendum decided that we would leave the European Union, and it is causing a mixed reaction from investors, insurers and retailers. Many are declaring the unstable market a crisis, while others see a risk that could be worth a gamble. “Valuations on the UK stock market look in the middle of their historical range, a reasonable time to put money in the market if you are a long term investor. But given the current volatility, you need to be willing to stomach further price falls,” said senior analyst Laith Khalaf from Hargreaves Lansdown. Meanwhile, online shopping seems to be driving the economy towards something of a recovery after years in recession – could this temporary effect become permanent, or will spending decrease again once we actually leave the EU?

The Brexit decision caused some scary results in the immediate aftermath, but is not all bad news for the UK economy. The value of the pound is actually giving the British economy something of a boost – thanks to overseas shoppers who are searching for bargains. Even before the referendum was announced, the UK pound had been struggling against the effects of the global recession – creating a deficit which the country has been fighting to reduce ever since. One surefire way to kickstart any economy is to encourage retail spending: but with Brits short of cash under austerity, disposable incomes have dropped and businesses have struggled. Online spending has taken a sharp rise in recent weeks – but that spending is coming from outside of the UK.

Brexit Infographic

Overseas Spending Pushes UK Economy Into Recovery

Even before the Leave vote was confirmed, the pound tumbled to a 31 year low during the vote count. This meant that overseas shoppers and investors could suddenly take advantage of the favourable exchange rate. The US dollar, for example, can stretch a lot further right now. As a result, there has been a sharp rise in overseas buyers setting up British-based online retail accounts, and a big jump in online retail spending. For now, at least, the markets have recovered and analysts claim “all post-Brexit losses” have been erased.

Of course, there is still a long way to go. Many financial analysts say that the recovery is just temporary, because as yet the UK remains within the European Union. Until the Government invokes Article 50 – the piece of legislation that starts the two year withdrawal process – then business continues as usual for all nations. International retailers will be assessing their options, but there is no immediate rush so decisions can be delayed – and this could explain the market’s sudden regained stability. There is still a lot of worry among the business community, because the impact of actually leaving the EU could be very significant and nobody is quite sure what the result of the exit will be. “We’re a long way off having a plan and leadership,” said the Confederation of British Industry’s Carolyn Fairbairn. “Businesses have very real concerns that need to be addressed.

Pound Recovery

So What Does This All Mean For UK Consumers?

Retail analysts predict 44.8% growth in the UK online shopping sector by 2020, claiming the market will be worth $62.7 billion. However, like most research projecting upcoming sales figures, the impact of Brexit was not considered at the time of the study and it could change the shape of future retail markets dramatically. The falling pound is sure to drive up high street prices on imported goods, making the already-struggling brick-and-mortar store even more unpopular. However, this could well drive British shoppers online, seeking online deals and discounts at reduced rates. Online British retailers who have struggled in recent years, particularly in the fashion sector such as those trading high demand luxury goods, could now find themselves with an influx of overseas orders.

If retailers want to take advantage of this keen market, they are sure to start running offers and promotions. Although our lowered pound might not be doing us any favours here in the UK, we could still stretch it further by grabbing an online bargain! As US, European and Chinese shoppers continue to buy British; we could revive our economy and start the process of recovery. Of course, there is still a great deal of speculation around our economic future, and we will have to see how the markets respond over time to the shock of the EU exit decision.