Fall in sterling double-edged sword
The recent fall in the value of sterling is squeezing domestic sales margins, and increasing the cost base of UK businesses, according to the results of the British Chambers of Commerce’s (BCC) latest International Trade Survey.
The results, which are based on the responses of nearly 1,500 businesses, indicate that the recent devaluation of pound is having a negative impact on the domestic sales margins of nearly half of respondents (44%). The effect is more diverse on export margins, with roughly equal levels of businesses reporting a positive (25%) and negative (22%) impact, suggesting that while the fall in value of the pound may be helping some UK exporters, it’s hurting others.
The survey also found that 68% of businesses expect the fall in the value of sterling to increase their cost base in the coming year. In turn, over half (54%) of companies expect to have to increase the prices of their products and services over the next 12 months.
Away from prices, the findings also show that nearly half of businesses (45%) do not currently manage currency risk. For those that do, invoicing in sterling instead of their customer’s local foreign currency (32%) was the most popular means, followed by opening a foreign currency bank account to deal with sales and purchases in the same currency (16%), and waiting for an advantageous rate and buying using the spot market (14%).
Dr Adam Marshall, director general of the BCC, said: “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. For firms that import, it’s now more expensive, and companies may find themselves locked into contracts with suppliers and unable to be responsive to currency fluctuations.”