As we approach March and the UK government steps up preparations for a no-deal Brexit, many businesses engaged with international trade will be concerned about the potential impact this could have on the British Pound. Back in 2016, the day after the UK voted to leave the EU, the pound suffered its biggest single day loss in recorded history. The continued depreciation that followed saw Sterling sink over 20% against the US Dollar and over 17% against the Euro in late 2016. It’s not all bad news as the weaker pound has increased the competitiveness of UK exporting companies as their products have become cheaper for international buyers. In addition when converting foreign revenue back into Sterling, extra profit is also gained. However, UK companies that are reliant on imports have been negatively impacted by the fall in Sterling, as the cost of goods and services from abroad has increased, which has squeezed profit margins and tarnished carefully planned budgets.
Although the pound has recovered some of its losses of recent years, the rising fears of a disorderly exit from the EU without an agreed trade deal in place has restored the pound’s decline. The uncertainties associated with international trade will increase if the UK automatically falls back on World Trade Organization (WTO) trade rules. This means no free trade agreements with the EU, its largest export market. Furthermore, UK importing companies will likely suffer as the value of Sterling could fall significantly lower and exacerbate the already languishing profitability of these businesses.
Despite this uncertainty, British business will find a way to succeed and in order to do so they will need to find a solution to manage the volatility associated with trading internationally.
Currency risk creates uncertainty for businesses and uncertainty creates currency risk through volatility, which makes forecasting a difficult task. There are tools and solutions out there designed to protect businesses from this volatility and to develop more effective forecasting.
Currency hedging strategies offer businesses a chance to protect their bottom line and secure profit margins whilst avoiding adverse exchange rate fluctuations. With the clock ticking and Brexit negotiations stalling, the risk of Sterling falling further is mounting. A cliff-edge Brexit exposing the UK and the EU to full-blown customs controls with one another could wreak havoc for both UK importers and exporters. The economic risks are vast and companies participating in cross-border business should already be preparing.
A specialist broker such as Western Union Business Solutions (WUBS) can help businesses protect themselves from currency volatility. Speak to us today for a free, no obligation health check and to learn more about how to save time and money when trading internationally.
If you would like to find out how Western Union Business Solutions can help you with any of these matters, please contact mark.williams@westernunionbank.com
