A poll card for the E.U. referendum. Photo by Abi Begum, via Flickr.
On June 23rd, Britain voted to leave the European Union in what’s come to be known as the “Brexit.” Shortly after the referendum result became clear, the pound began plummeting, dropping to lows against the dollar not seen since the days of Margaret Thatcher. On Monday morning, after 72 hours that saw stock declines amounting to $2 trillion wiped off the global economy, the pound’s drop continued, and now sits at 31-year lows. This was after prominent Leave campaigner and likely future prime minister Boris Johnson declared the sterling’s value would stabilize. The finance sector is also on edge, with Barclays and RBS seeing roughly 20% declines in their respective share prices on Monday, causing the two banks’ stock to briefly suspend trading. And ratings agency S&P downgraded the U.K.’s credit from its AAA status. Will these global tremors send earthquakes through the art market?
Short-Term Auction Impact
According to this year’s TEFAF report, Britain was responsible for 19% of the total value of global auction sales in 2015. What long-term threat Brexit holds for that figure—the largest in Europe by double digits—is unknown. But some indication of the short-term impact is currently underway. London’s major auction houses hold their contemporary sales in London this week. And in the leadup to Brexit last week, the houses hosted their Impressionist and Modern sales. While Sotheby’s fared well, selling a total of £103.3 million, the Christie’s sale came up £7 million short of its low estimate. Sell-through rates were below normal at Christie’s as well as at Bonhams. And a number of major lots, including René Magritte’s Le Temps Jadis (1966) and a pair of works by Picasso, were pulled from the sales within hours of their date under the hammer. At the time, some were skeptical of the impact of the impending Brexit vote on the tallies, especially as polls hedged in favor of the Remain camp in the day ahead of the vote. Instead, analysis centered mostly around the general cooling of the market, and many pointed to a lack of strong consignments.
While the global uncertainty would have endured regardless of the referendum outcome, this week Brexit will be at the center of the London auction week post-mortem. The collapsing pound and general dour outlook on what works will fetch at auction is expected to deter consignments in London going forward (particularly in the Old Masters department). Some have speculated that in the short term, however, the increased buying power of dollars and euros may spur sales. “I am sure there will be a lot of people who will come to London hoping to pick up bargains,” Rudy Capildeo of the London-based Goodman Derrick LLP told Bloomberg. Some also believe that in times of economic uncertainty, art appeals to those looking for a safe harbor for their assets. Given the low, and in some cases negative, yield on bonds (another safe harbor), fine art may become an increasingly attractive site for storing wealth. On Monday night, Phillips’s contemporary auction saw a 68% sell-through and an £11.87 million total, below a £14.9 high estimate—not a blockbuster result but not catastrophic compared to the havoc Brexit is causing in other sectors in the market.
Long-Term Market Uncertainty
Regardless, even one week of auctions is a data-point, not a trend. The impact of voting to leave the E.U. is simultaneously uncertain and massive, expected to reverberate for years to come. Many in the cultural sector used Monday to take stock of the impact before going on the record. But any damage wrought on the broader economy will no doubt hit the arts. If the economic collapse in Greece is any guide, the middle of the market will fare the worst, with mid-tier buyers unwilling to splurge on what is ultimately a luxury item.
Still, the new world order is hazy. The U.K. political class, bereft with infighting, is steering the country through unchartered territory with no clear map, nor a pre-determined place to make landfall. In the leadup to the referendum, Leave campaigners refused to say what European country the U.K. would seek to emulate in its relationship to the E.U. should it vote to exit. Johnson’s post-referendum declaration that he “cannot stress too much that Britain is part of Europe—and always will be” has only further confused both sides.
Given that no country has left the E.U. before, much confusion remains around the complex process of actually disentangling the United Kingdom from the E.U.’s nexus of rules and regulations. What will the final deal hold? Will British citizens and artists be able to remain abroad (and vice versa)? Will taxes and tariffs on art continue to be changed? Will the U.K.’s emergency budget—to be passed following the selection of the next prime minister—gut arts funding to pump money into a stimulus package? Despite the assurance by Leave campaigners that Brexit should be a leisurely process, it is looking increasingly likely that E.U. powers will refuse to negotiate a future arrangement that will answer such questions until the British parliament triggers article 50, the Lisbon treaty provision which begins the legal machinations for leaving the European Union.
Until such a final arrangement is drawn up, the E.U. rules regarding tariffs and taxes—which currently do not apply to consignments from inside the European Union while often heavily taxing those imported from without—are in place for auction houses. Free movement of people lives on. Yet as political skirmishes occur across the U.K. political spectrum and politicians backtrack and contradict campaign promises, uncertainty is the only absolute. Ultimately, it is the final arrangement between the U.K. and the E.U. that will have an enduring impact on the market. And no one, least of all those who led the charge for Leave, seem able to articulate what form exactly this relationship will look like.
A Different United Kingdom
While market observers run to consult an abacus or ouija board in the aftermath of Brexit, many in the artistic community are simply shocked by the referendum result, which speaks to a broad disconnect between artists and the British population writ-large. While the actual voting breakdown was 52% leave to 48% remain, a poll by of the UK’s Creative Industries Federation members found 96% in favor to stay within the E.U. Major artists almost uniformly joined the Remain camp, in some cases contributing work to the cause. Tacita Dean, a seminal member of the YBAs, told The Art Newspaper that the prospect of a referendum and a more provincial U.K. filled her “with cold dread.”
Along with coming to terms with the economic impact of the vote to leave, many are struggling to parse why a surge of populist anger didn’t respond to the warnings of the political and economic classes. Simple answers are hard to come by. But this populist sentiment, which has parallels in the U.S., poses a major threat to market and political stability. The legitimate economic grievances of many have become entwined with, or fuel, anti-immigrant xenophobia and racism. For many, particularly young people who predominantly backed Remain, the referendum result has triggered a seismic shift in how they think of their nation’s future. As Laurie Penny wrote, “This morning, I woke up in a country I do not recognise.” Beyond what taxes, tariffs, and laws change following the referendum, the United Kingdom is today a profoundly different place.
Update 06/28—Subsequent to publication, we received this comment from Matthew Slotover, Frieze co-founder:
“In the end, this was a referendum on immigration. The Leave campaign preyed on the usual mixture of fear, ignorance and prejudice to vote for an old Britain that should never return. As a fourth generation immigrant, this makes me sad, angry and ashamed.
It is too early to comment on how this will affect art—we have no idea how the chips will fall, and I would be surprised if UK politicians allowed a situation which damaged British companies’ ability to do business internationally. The art world always confounds expectations and indeed, in the short term a lower pound will lower the cost of British art and art services, and a reduction in house prices would be positive for artists and art workers in London. Frieze was founded as a truly international organisation, working with colleagues all over the world, and at this point we remain more committed to that principle than ever before.”