[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries
.

Fall in value of Sterling a ‘double-edged sword’ for UK businesses

The recent devaluation of sterling is having a diverse effect for export margins, with 25% of businesses reporting a positive impact and 22% a negative one, according to the British Chambers of Commerce (BCC).

07 FEB 2017 | CHRIS SEEKINGS
Currency fluctuations are "likely to continue as the Brexit transition unfolds" ©Shutterstock
Currency fluctuations are "likely to continue as the Brexit transition unfolds" ©Shutterstock

The findings from its latest International Trade Survey show that despite some exporters benefiting from greater competitiveness trading with a cheaper currency, almost half of businesses believe it is having an adverse impact on domestic sales margins.

It was also found that 68% of companies believe the devaluation of Sterling will increase their cost base this year, with 54% expecting to have to raise their prices for products and services over the next 12 months.

BCC director general, Dr Adam Marshall, said: “The depreciation of Sterling in recent months has been the main tangible impact that firms have had to grapple with since the EU referendum vote.

“Our research shows that the falling pound has been a double-edged sword for many UK businesses. Nearly as many exporters say the low pound is damaging them as benefiting them.

“Inflation is going to be an important concern for businesses over the coming year. While rates aren’t high by historical standards, they are still putting increasing pressure on companies.

“Rising costs are squeezing margins, and forcing many firms to increase the prices of their goods and services.”

The BCC research involved questioning 1,474 business people from every region and nation of the UK last December, which revealed that 45% of businesses do not manage currency risk or plan to over the next six months.

For those that do manage this risk, 32% choose to invoice in Sterling rather than their customer’s local currency, while opening a foreign bank account to trade in the same currency as their clients was the next most popular method for 16%, followed by waiting for an advantageous rate on the market for 14%.

“Currency fluctuations aren’t something in the UK government’s direct control, and they are likely to continue as the Brexit transition unfolds,” Marshall continued.

“Ministers must do everything in their power, meantime, to help businesses keep costs down and stay competitive.

"Alleviating many of the up-front costs facing companies should be a priority for the budget in March – starting with the sledgehammer of business rates.”