GOING GLOBAL GOING GLOBAL By George Vessey
As the UK Government step 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. The weaker pound has increased the competitiveness of UK exporting companies because their products have become cheaper and when converting foreign revenue back into Sterling, extra profit is also gained.
LEADING ADVICE FROM THE INTERNATIONAL TRADE TEAM
Why a no-deal Brexit spells trouble for cross-border trade
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 since the lows of late 2016, 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 fall back on World Trade Organization (WTO) trade rules with 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.
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 help mitigate currency risk and 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.
This article has been written by George Vessey who works at Western Union Business Solutions. Western Union Business Solutions is a division of The Western Union Company. Services in the UK are provided by Western Union International Bank GmbH, UK Branch. Western Union International Bank GmbH, UK Branch (WUIB) (Branch Address: 131 Finsbury Pavement, London, EC2A 1NT) is a branch of Western Union International Bank GmbH (registered in Austria, company number FN256184t, VAT Number ATU61347377, with its registered office at Schubertring 11, 1010 Vienna, Austria), which is licensed by the Austria Financial Market Authority (Finanzmarktaufsicht). WUIB is subject to limited regulation by the UK Financial Conduct Authority and Prudential Regulation Authority. This article has been prepared solely for informational purposes. No representations, warranties or conditions of any kind, express or implied, are made in this proposal. All comments made are opinion only and not necessarily the opinion of Western Union Business Solutions.
November/December 2018 Chamber Profile 19
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