The U.K.’s referendum vote to leave the European Union (EU) caught many within and outside the U.K. off guard. CIOs and IT leaders, in particular, may wonder how the pending changes in the financial and political landscapes will impact their organizations, vendors, and technology purchases over the coming months.
Business discretionary IT investments, which struggled during the run up to the vote, will suffer in the short term and the effects will spread further than Western Europe.
In the wake of the U.K.’s exit from the EU, new long-term, strategic projects will be put on pause and likely not restarted until 2017 when the outlook with the U.K. outside the EU becomes clearer.
Lead and reassure
Staff may be the largest immediate issue. The long-term uncertainty in work status will make the U.K. less attractive to new foreign workers. Retaining current non-U.K. staff and having less access to qualified new hires from abroad will impair U.K. IT departments.
For IT vendors, this is a good time to reassure their employee base regarding immediate corporate planning.
IT vendors should craft messages of hope or help address data protecting, data location, ongoing support and privacy concerns. They can also create an “Office of Brexit” to watch for impacts of any legislative changes and provide influence where possible.
How great is the risk to IT spending?
With the U.K.’s exit from the EU, and a tremendous amount of political volatility, business confidence erosion and price increases, there will be an impact on the U.K., Western Europe and Worldwide IT spending.
A trickledown effect will occur, and IT spending in Europe will undoubtedly be impacted.
Consumer discretionary IT spending, which slowed in the first half of 2016 in the U.K., will not resume its normal pace by the end of 2016, but will last until the first half of 2017. It will spread to most of Western Europe as well.
The time to recover from the drop in the pound that occurred last year was expected to be short with a recovery to 2015 levels by the first quarter of 2017. Post Brexit, the pound’s recovery will likely take longer making dollar-denominated IT products and services in the U.K. relatively more expensive for an extended period, as technology providers adjust pricing upward to cover costs and protect margins.
However, Brexit’s effect will not impact worldwide IT spending growth as deeply.
Maintain your current practices and ongoing strategies – the U.K. has embarked on a process to change, but that change is yet to be defined.
John-David Lovelock is a Research Vice President in Gartner’s Technology and Service Provider Research group and Chief IT spending forecaster.