UK firms adapt to ‘new normal’ of international trade

Global payment and risk management solutions specialist AFEX have released a research report that reveals a sharp increase in the number of UK importers and exporters re-evaluating their international trade strategies following the June 2016 EU referendum.

AFEX’s third Currency Risk Outlook Survey questioned more than 650 financial decision makers globally at SMEs engaged in international commerce about their attitudes towards global trade, foreign exchange risk and their methods of managing it.

Over two-thirds (71%) of UK respondents said their currency risk mitigation strategy had been affected by the outcome of the Brexit vote, which has seen Sterling fall by over 18% in value against the US dollar.

Currency volatility affected the business operations of one in three (34%) respondents in 2016, compared to just 19% that said the same in 2015. The most common impact was on international growth, with 13% saying they had cancelled their growth plans. Nine per cent said they had reduced the size of their business as a result of currency volatility while 6% have reduced headcount. A number of respondents have also benefited from the weaker value of Sterling, with 10% saying they had accelerated their growth plans as a result.

Post-Brexit currency volatility has also impacted the prices firms are charging for their goods or services. Among companies surveyed, over a third (35%) have increased the price of their goods or services as a result of the devaluation of Sterling resulting from the June 2016 referendum result. A further 17% said they plan to increase prices within the next three months and 14% plan to introduce price hikes by the end of the year. In recent weeks companies including Microsoft, Apple, Sonos and Tesla have all announced price increases in the UK citing currency fluctuations as a factor.

Firms are anticipating continued volatility throughout 2017, with 71% saying currency volatility poses the biggest challenge to mitigating currency risks in the year ahead. Despite the increased uncertainty, the majority of those polled remain committed to global commerce, with 83% anticipating maintaining or increasing their international trade levels in 2017.

“Uncertainty and concerns over currency volatility dominate this report with the fallout from the EU referendum looming large for UK importers and exporters,” said Jan Vlietstra, chief executive officer for AFEX. “The steep decline in the value of the pound in the immediate aftermath of the vote and its sustained weakness since has made many businesses look closely at how they’re doing business internationally. These findings reveal that many firms are looking at ways to factor in this uncertainty and are revisiting their business models be that by changing their pricing, renegotiating their contracts or more actively managing their currency risks.”