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Analysis: business confidence shows few Brexit blues so far

By Abhinav Singh on 03/10/17 10:20
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Abhinav Singh

In October 2017, the Conservative party conference was held in Peak’s home city of Manchester, UK. Perhaps unsurprisingly, given the topic that dominated proceedings, visitors to the city weren't only those attending the conference, but those protesting it too. That topic was, of course, Brexit, which split opinion almost exactly in 2016 and about which there are still impassioned arguments for and against being made.

Whatever people’s political stance on Brexit – and that’s something we’ll be studiously avoiding here – it’s fair to say that there were concerns on both sides of the debate about what impact an ‘out’ vote would have on business confidence. Projections before the vote typically ranged from little-to-no change to the metaphorical cliff-edge plummet.

With over 15 months having now passed since the referendum and this week’s conference providing yet another sharply focused lens through which to examine the lay of the land, we were interested to look at just what impact the ‘out’ vote has had in that time on business confidence. Naturally, to find out, we followed the data.

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Our approach

We built our insights by tracking changes in business investment and sales over time, courtesy of the following datasets compiled by the Office of National Statistics (ONS):

  1. Retail sales: sales for broad sectors on monthly basis from January 2013 to August 2017.
  2. Investment: business investment by sector on a quarterly basis from 2014 Q3 to 2017 Q2.

We pulled apart the impact of the referendum on individual sectors by digging into the data from the ONS and checking if ongoing negotiations have had an effect on investment. We also applied advanced machine learning techniques to the historical data to identify any abrupt trend changes in investment [1].

What we found

Despite numerous articles painting an apocalyptic picture, there are reasons to be optimistic. We found that most businesses are continuing to invest in the future.

Although private sector manufacturing investment suffered immediately after the referendum, it has steadied in 2017, while non-manufacturing private investments have increased at a steady rate and even increased in pace in the second quarter of 2017. It’s also worth noting that non-manufacturing investment is much larger than manufacturing; seven times larger, in fact.

The chart below shows a time series of private business investment since the first quarter of 2012. Each blue dot indicates the inferred quarter where a qualitative change occurred in the time series and the red dot shows the quarter of the Brexit referendum. Only investment in manufacturing and distribution is shown to have been significantly affected since the referendum.

Private business investment since the first quarter of 2012, including Brexit referendum

Next, we dug a little deeper into the manufacturing and distribution sub-sectors. The data shows that investment has grown in each of the sub-sectors except manufacturing.

Construction, manufacturing and distribution sub-sectors before and after Brexit referendum

We do see some signs of hope in the manufacturing sector, though. While investment has reduced post-referendum, investment in the engineering and metals sub-sectors seems to have been picked up again in 2017.

Manufacturing sub-sectors since 2012, including Brexit referendum

Manufacturing sub-sectors before and after the Brexit referendum

The service industry, which is the UK’s largest sector, paints a more optimistic picture. The financial, information, real estate and education sub-sectors have seen increased investment and overall investment in the service sector has increased as a result.

Services industry sub-sectors since 2012, including the Brexit referendum

Elsewhere, retail sales have continued to grow post-referendum. Indeed, there have been some dramatic year-on-year sales increases within retail sub-sectors, with non-store retailing investment having shown the biggest increase of almost 20%.

Services industry sub-sectors before and after the Brexit referendum

At the risk of relying on a cliché, all of this paints a picture of UK businesses keeping calm and carrying on. One thing to bear in mind, of course, is that the negotiations for the UK leaving the EU only began in June and are due to continue for two years. Until those talks conclude, we won’t know exactly what Brexit is going to look like. Without a clear idea of that on which to base decisions, it is perhaps understandable that businesses have generally continued as they were.

It may be, of course, that business confidence remains fairly stable throughout the negotiations and even after the UK has left the EU. Alternatively, we may see confidence beginning to change more significantly one way or the other as the shape that Brexit will take becomes clearer.

This is a little insight into how open data can be used to provide business insights. To find out if your business could use data in a similar way, have a chat to one of our experts. We’ll tell what’s possible, with no hard sell.

Predictive Analytics

1. Haynes, Kaylea, Paul Fearnhead, and Idris A. Eckley. "A computationally efficient nonparametric approach for changepoint detection." Statistics and Computing 27.5 (2017): 1293-1305.