Brexit Could Impact IT Spending and Uncertain EU-U.S. Data Transfer Policy

Fears that the unexpected decision by British voters to withdraw from the European Union is continuing to roil financial markets stoked by fears that the referendum will lead to a global recession. While it throws the value of the pound and Euro into flux, Britain's withdrawal from the EU will have a more far-reaching ripple effect on industries including IT that either reside or do business in there.

Whether or not the current state of panic in the markets is overblown -- and what impact it'll have -- remains to be seen. Some believe it will create market deterioration in the U.K. and Europe. The extent and duration of that is unknown. At the very least, it will be more expensive to do business in Britain and potentially all of Europe.

S&P today reduced the U.K.'s credit rating from AAA to AA, meaning it could trigger changes to trade deals -- and certainly increases the cost of new deals. Anticipating this fallout, Gartner on Friday reduced IT spending forecasts for the remainder of this year. Worldwide IT spending will drop from 1.5% to 1.2%, according to Gartner.

"Businesses will want to reassess where they are physically located, where they need to be in future and where they buy from, to maximize their market potential and minimize cost," Gartner analysts said in a research note. "Many businesses will trigger strategic reviews of how they operate and buy services."

Despite the uncertainty Brexit brings, the analysts advised CIOs, particularly in the EU, not to panic. It recommended the following:

• Work with the business to create project teams to assess the impact of Brexit and plan for needed changes.
• Review any European government contracts, which often contain specific Brexit clauses.
• Reduce uncertainty in your workforce by communicating proactively about the situation and what your business is doing to protect the rights and benefits of staff.

The timeframe for Britain's withdrawal remains to be seen but first the country has to vote in a new government in wake of the resignation of Prime Minister David Cameron, in response to the decision, which he had vocally opposed. Cameron has said he'll stay on for at least three months. The U.K's Information Commissioners' office issued a statement noting that existing privacy laws remain in effect. But according to numerous reports, it could take two years before the withdrawal is complete. As reported by Fortune "that means years of uncertainty, with tech firms and investors unable to know for sure how regulations will evolve (or devolve) in the U.K. and, indeed, the EU."

Brexit also puts into question the data transfers between the U.S. and Europe, which are still trying to come up with data transfer and personal information regulations in wake of the E.U.'s decision to strike down the Safe Harbor Agreement. Shelly Palmer, CEO of Palmer Advanced Media, noted in a blog post that Britain is now a "lame duck" in those discussions.

"As an EU member, the world's 5th largest economy (now 6th because the British pound got hammered that hard by the BREXIT vote) had a loud voice at the table with Germany and France, which want far stricter controls on EU data flow," Palmer wrote. "The U.K.'s voice of reason on the subject of EU data flow is now silent."

Posted by Jeffrey Schwartz on 06/27/2016 at 1:42 PM