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Mark Lindsay

Bibby Financial Services Managing Director of Trade and International, Mark Lindsay, discusses the effects of a weaker pound on UK SMEs.

Did someone mention Brexit? Over the past two weeks, the UK has been awash with discussion and debate over the country’s vote to leave the EU.

In newspapers, on the TV and radio, at work, in the supermarket, on social media. Wherever we turn, there are conversations taking place about the referendum outcome and whether it is good or bad for the future of the country.

Whichever box you ticked on 23 June 2016, there’s no denying that there have been profound after effects. One of the biggest consequences we’ve seen in recent weeks is a sharp fall in the value of the Pound (to less than $1.30 – a 31 year low – as I write this).

There’s been talk on trading floors of the Pound reaching parity with the Dollar. While highly unlikely, even the sheer notion of such devaluation demonstrates how things have changed in a matter of only weeks.

But a weaker pound is a double edged sword; a threat to some; an opportunity for others.

The key for UK SMEs is to understand how currency fluctuations affect their businesses; what they can do to protect against volatility and – in some cases – how they can take advantage of the opportunities presented.

Which businesses are likely to benefit from a weaker pound?

The Government often speaks of its target to achieve £1tn in export sales by 2020. Although it’s unlikely that The Chancellor would have opted to encourage international trade through a weaker pound, while it lasts it is likely to boost UK exports.

A weaker pound means that overseas buyers need less currency to purchase the same quantity of goods and services, making UK goods more competitive and hopefully resulting in increasing orders. From speaking with our Export Finance clients, this certainly seems to be the case as many of them look to ramp-up export quantities while exchange rates are favourable.

Export investment graphOur latest SME Confidence Tracker – a quarterly survey of 1,000 UK SMEs – was undertaken before the referendum outcome. However, results show a steady increase in the proportion of SMEs investing in export activity since 2014. While predicting any such sentiment in today’s climate is perhaps a fools’ errand, it wouldn’t be surprising to see this increase further in Q3 as exports become more attractive.

Businesses that can easily switch from domestic to export sales are likely to be the leading beneficiaries of the current environment, as flexibility will enable them to chop-and-change domestic and overseas sales as markets continue to fluctuate.

The outcome of the referendum has implications for many different sectors. For example, SMEs operating in the tourism sector (and associated supply chains) are set to profit as tourists take advantage of falling rates. Overseas visitor numbers are likely to rise and it has been reported that many Britons will now opt to holiday in the UK to avoid paying more for overseas trips and foreign currency.

Which businesses will be disadvantaged?

In short, a weaker pound is broadly bad for imports. SMEs importing raw materials have seen costs significantly rising. Likewise, those importing finished goods to sell-on have seen prices increase, eroding margins and placing immense pressure on cashflow. The manufacturing and wholesale sectors are likely to be the worst hit, though not exclusively and ripples are likely to be felt throughout supply chains.

In recent weeks, we’ve spoken with a number of UK importers, many of whom are now looking for strategic guidance and support over the months ahead. One business has revised its profit forecast from 20 per cent to break-even. Another has been forced to cancel £2m worth of orders as a declining Pound would have not only wiped-out proposed margins, but also forced them to operate at a significant loss.

However, in this changing environment, there are opportunities for businesses to protect themselves against future shocks and to renegotiate contracts. Our Trade and International team has assisted a number of businesses in recent weeks,  providing steady ongoing working capital, letters of credit and immediate supplier payments, helping them to reduce the impact of recent volatility.

Furthermore, our Foreign Exchange team has been able to lock-in exchange rates on forward contracts for a number of our clients. For one such client, we’ve been able to secure rates until 2017, providing stability and surety.

Strategic business planning

As further economic fluctuations are likely to take place over the coming months, now is a critical time for SMEs to take a proactive approach to protect or grow their businesses.

At BFS, our Trade & International team, and Foreign Exchange division are working alongside our clients to support them both now and in the future.

To find out how we can support your business, visit