Four in Five UK Businesses Lack Hedging Strategies

Four in five UK businesses say they have no hedging strategies in place despite concerns about financial market risks and their potentially negative impact, according to the first Business Risk Report from Lloyds TSB Corporate Markets.

The report, which captures the views of 2,579 businesses across the UK, shows 84% lack any measures against financial market risks. Yet, despite this, a fifth (18%) of companies are more concerned than six months ago about the impact of interest rates volatility, foreign exchange (FX) movements (28%), commodity prices (34%) and inflation risks (25%).

Companies are better prepared to face interest rate risk, but this only accounts for 11% of businesses. Only 6% of companies say they have a hedging strategy in place to protect against inflation risks, while 9% have guarded against commodity prices and 10% are ready to face FX risks.

The report also reveals that businesses in the big cities are ignoring financial market risks, with Manchester, the south-east and London looking particularly stark. The businesses in these areas report they are least likely to have hedging strategies in place for interest rates, FX, commodities and inflation.

Similarly the wholesale sector is the least prepared with nine out of 10 companies reporting their hedging strategies are deficient compared with the construction and hotel & catering industries which seem the most prepared, even though only 12% say they have risk management strategies in place.

Clare Francis, managing director and head of sales and derivatives structuring, Lloyds TSB Corporate Markets, said: “Our report clearly shows that most UK businesses are not as prepared for the financial volatility as they would like. While all sectors express concerns about the impact of interest rates, foreign exchange movements, commodity prices and inflation, the overwhelming majority still have some work to do to reflect this in their hedging strategies.”

Other findings of the report:

• Business confidence has risen from a record low of -32 to -3, which suggests economic activity is expected to stabilise in the second half of 2009, though sustained growth is not yet assured.
• Sentiment is divided among the business world on interest rate movements this year. While a solid third of British businesses (31%) expect interest rates to rise this year, two-thirds (66%) expect the Bank of England’s Monetary Policy Committee to keep the rate at its current 0.5% low.

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