The listed UK technology sector remains small, especially when compared to behemoths in the US and China. 
But there is a group of UK companies forming an emerging sector that is playing an increasing role in driving the overall economy. This so-called ‘flat white’ economy has become the home of start-ups, entrepreneurs and small businesses, created by merging the digital and creative sectors.
Cereal cafes and digital start-ups can lack the longevity (and credibility) of more traditional parts of the UK economy, but the ‘flat white’ economy – coined from millennials’ tendency to meet and do business in coffee shops – added 14.4 per cent in gross value to the UK economy last year, outpacing traditional industries.
An example of a business that has benefited from this economic tailwind is media company Future. Run by Zillah Bing-Thorne, Future publishes specialist content both in physical format and online. By attracting special interest groups, such as photography enthusiasts, Future is able to monetise the content directly, sell premium advertising space and generate commissions by offering the opportunity for its consumers to buy products like cameras, tripods, lenses and bags.
This is just one example of a number of digital experts and creatives working together to generate wealth for employees, suppliers and the providers of capital.
The ‘flat white’ economy represented the largest sector within the UK economy in 2018 – it grew three times as fast as the overall UK economy - with its growth partly being attributed to the UK’s remarkably high share of online consumers, but also the influx of skilled workers to London from elsewhere in Europe. The Centre for Economics and Business Research (CEBR) estimates that EU migration has swelled employment in this sector by 40 per cent from 2008 to 2017 as swathes of internationally-mobile young people have set up shop in the UK.
But could the future of this buoyant sector be jeopardised by a messy Brexit?
Many UK businesses rely on importing human capital, and they strive to attract hard-working, intelligent people. For the workforce, the desire to settle is likely to include feeling welcomed and valued - something smart, ambitious young people might find lacking in Brexit Britain.
A reversal of the desire or ability of talented individuals to contribute to the growth, innovation and wealth of the UK economy would be detrimental and, worse still, the emigration of internationally mobile talent from the UK could turn the flourishing ‘flat white’ economy into a mug of cold tea.
Uncertainty
Since 2016’s vote, the lengthy political paralysis we have seen has contributed to the UK stock market being cheap relative to history and under-owned by global investors.
This indicates there are opportunities afoot, but so far the UK economy has certainly felt the effects of the Brexit impasse.
In some areas, capital investment decisions have been deferred and economic data has experienced distortion. For example, in the run-up to the original Brexit date of 29 March, we saw evidence of companies stockpiling goods to protect against supply disruption. As companies’ inventory is included in GDP calculations, recent UK readings have been bolstered by Brexit-related inventory build-up.
While private equity investment was brisk last year in Europe, it dwindled in the UK, underlining the obvious truth that uncertainty is off-putting. With an extension to 31 October and the resignation of Theresa May as prime minister, the situation is in flux, and likely to remain so in the short term.
Stockpicking opportunities
While Brexit uncertainty is undoubtedly affecting companies’ decision-making, it’s not all doom and gloom, even in the listed UK technology sector which sits at the heart of the flat white economy.
A wholesale dumping of UK assets by overseas investors has created some attractive opportunities which are a boon to discerning stockpickers.
For example, plenty of UK-listed companies have continued to compound their earnings, cashflows, and dividends – to the benefit of equity holders.
Earnings delivery remains crucial to individual stock performance, and with UK earnings expectations set at realistic levels and monetary policy loose, this should bode well.
From a currency perspective, as the risk of a hard Brexit has receded, sterling has also rallied, helping to contribute to some recovery in domestically focused equity prices.
It is impossible to predict how Brexit will ultimately affect the UK economy, stock market and sterling, and we also can’t second-guess the nature of capital flows stemming from Brexit-related volatility.
Nonetheless, it is important to look through the short-term noise.
Coffee fads may come and go, but businesses that are growing their earnings and cashflows, and where balance sheet strength is supportive of that growth, should deliver over the long term.
Chris St John is manager of the AXA Framlington UK Select Opportunities fund. The views expressed above are his own and should not be taken as investment advice.