As UK and EU officials prepare to meet in Brussels this month to forge a divorce deal agreement, Fortune 500 global payments company Western Union (NYSE: WU) today reveals, having conducted an independent study on the state of the small and medium sized business (SMEs) market, the significant impact Brexit could be having on the UK’s 5.7 SMEs, with the launch of its second FX Barometer Report.
The survey of over one thousand SMEs reveals : One in three (33%) professionals managing international payments at SMEs say that forward planning is “not easy” or “not easy at all” in the current climate of economic uncertainty. Furthermore, over one in four (27%) say economic uncertainty is their biggest barrier to trade, while almost half (41%) identify it as their biggest concern for their future international trade and payments needs.
One area in which Brexit-fueled uncertainty has been most strongly reflected is the currency market, which saw Sterling slump to a 31-year low against the US dollar immediately after the referendum. Looking forward, one in four (24%) SMEs, however, say that they could only tolerate a 5% negative FX move before facing financial difficulty, with this figure jumping to one in three (33%) in the event of a 10% unfavourable FX swing.
To counter negative effects of currency volatility over the past 12 months, the top two choices for SMEs have been to absorb increased costs themselves (26%) or increase prices to pass on additional costs to customers (25%). Over the past 12 months, on average UK businesses passed on a 19% price increase onto consumers to counter FX, rising to 33% for finance, insurance and real estate businesses. The increase remains high (24%) for the energy and utilities sector, but falls to 10% for retail, wholesale and food.
To help SMEs manage risks and navigate the economic climate of uncertainty, Western Union Business Solutions has developed a new online tool where firms can benchmark their FX pricing models for free and understand how they can maximise their international cashflows. The WU® Currency Forecaster aims to help SMEs better understand foreign currency risks so they can minimise their exposure to the current volatility plaguing the currency market. As a result, these solutions can enable stronger FX risk management to help SMEs improve profitability and compete in the international market.