Understand the Brexit Impact on IT

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. John-David Lovelock, research vice president at Gartner, noted that 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, some new larger, long-term strategic projects will now be put on pause and likely not restarted until 2017 when the outlook with the U.K. outside the EU becomes clearer,” he said.

Read the Gartner First Take:Brexit Will Disrupt CIO and Vendor Plans Through 2018

Lead and reassure

However, CIOs can take steps to lead their organizations through the uncertain waters ahead to remain competitive and plan for growth, added Mark Raskino, vice president and Gartner Fellow. While U.K. CIOs may expect to see some hiring curtailment over the next few months, they can reach out to personnel to reassure key talent working for them in the U.K. with potential assistance and loyalty bonuses, he said.

Some CIOs should, however, plan alternative strategies in companies that are dependent on EU citizens working for them in the U.K. It’s possible that within the next two years, the U.K. will see a decline in the number of young people moving into the region for employment. For those CIOs in U.K.-based companies with a high dependency on European government contracts, expect difficult business conditions and significant cost-cutting requests.

“ IT vendors should craft messages of hope or help that address data protecting, data location, ongoing support and privacy concerns.”

For IT vendors, Mr. Lovelock suggested that this is a good time to reassure their employee base regarding immediate corporate planning. “Address concerns about office closures and relocations due to the ’leave’ vote,” he said.

IT vendors should craft messages of hope or help that 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?

U.K. and worldwide impact

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.

The current forecast growth for U.K. IT spending is 1.7 percent. The Brexit will drop this figure between 2 and 5 percent. In other words, U.K. IT spending growth will certainly be negative in 2016, Mr. Lovelock said.

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.

“ U.K. IT spending growth will certainly be negative in 2016.”

“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 1Q17,” Mr. Lovelock said. 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.

Similarly, Western Europe’s estimated 0.2 percent growth rate in 2016 will turn negative. However, the Brexit’s effect will not impact worldwide IT spending growth as deeply, and the current 1.5 percent growth will remain above 1 percent.  

“Maintain your current practices and ongoing strategies,” Mr. Lovelock suggested. “The U.K. has embarked on a process to change, but that change is yet to be defined."