- New research from Western Union finds over a fifth (22%) of UK importers saw profits fall by an average of 12% since the EU Referendum due to Sterling depreciation, equating to an estimated 50,000 UK businesses
- 63% of businesses passed on higher import costs to their customers
- However, better financial and FX planning could help businesses mitigate further risk, Western Union says
UK importers lost an average 12% in profits since the EU Referendum as a result of Sterling depreciation, according to new research* from Western Union as the countdown begins on a year to Britain's exit from the EU on 29 March 2019. The figures are part of the global payments specialist's new FX Barometer, a special quarterly analysis of FX trends and insights to help businesses and their advisors derive more value from their international trading and foreign exchange (FX) payments strategy.
The Western Union survey of 1,110 UK businesses reveals that over the past 12-18 months, over a fifth (22%) of UK importers saw their profits fall due to Sterling depreciation. With 227,000 importing businesses in the UK – collectively employing 12.6 million staff – according to the latest HMRC figures*, this means that an estimated 50,000 businesses across the country were negatively affected by the weaker pound.
The research also found that while 61% of businesses source internationally for lower costs, over two-fifths (41%) saw import costs rise as a result of Sterling depreciation since the EU referendum. Some 67% of UK importers had to absorb these increased costs, which will have been in part be FX related, while just under two-thirds (63%) passed an average price increase of 17% to their customers. This adds to inflationary pressures in the economy which was felt in headline inflation rates, which hit a six year high of 3.1 percent in November 2017, before dipping back to 3 percent in the following months, according to Office of National Statistics' figures.
Despite continued uncertainty and currency volatility, only a fifth (22%) of UK businesses that import increased their use of FX management tools such as forwards and options. According to the WU survey, almost a fifth (16%) of UK importers believe that currency fluctuations will simply even themselves out over time. This is despite the fact that Germany, France and Spain are within the top five countries from which UK businesses import and uncertainty about the UK's trading relationship with Europe is likely to remain, which may have a knock impact on volatility and cost.
"Importers have taken a real hit in profits since the EU referendum caused by the depreciation in Sterling amidst political and economic uncertainty," said Tony Crivelli, Global Head of FX Services at Western Union. "Even a small fluctuation in FX can make a huge impact on profits – particularly for SMEs. A robust FX strategy can make a significant difference to the bottom line but unfortunately many businesses continue to operate without having a clear plan in place to mitigate future risk."
To help businesses, particularly SMEs, build more robust currency strategies to mitigate loses from currency fluctuations, Western Union has created an FX Forecasting tool. The tool enables UK businesses to compare currency forecasts with their peers and FX experts – allowing them to gain a better insight into their current strategy and help them build more effective plans to drive growth.
Crivelli continued, "FX management can be a complex task and with a multitude of other business functions to consider, SME leaders often struggle to manage this on their own. But with the right support and a clear benchmarking process to help them understand how they compare to their peers, SMEs can protect themselves from the damage of unexpected market volatility, setting themselves up for business success."