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Sterling Fall Continues To Hurt UK Companies

• Posted by Shyam Gokani in Bank of England, Brexit, Currency, Economy, EUR, GBP, Prime Minister, Sterling, UK, Uncategorised
• February 6, 2017
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Sterling’s sharp fall against the U.S. dollar and Euro since June’s Brexit vote has so far hurt almost as many exporters as it has aided, the British Chambers of Commerce said this morning.

A cheaper currency normally helps exporters in the medium term, but the BCC said that currency weakness was proving a double-edged sword for its members, mostly small and medium-sized businesses.

Some 25 percent of businesses said sterling’s weakness had boosted their export margins, but 22 percent said it had reduced the profitability of their overseas sales.

Nearly half of the companies surveyed did not manage currency risk, and had no plans to do so.

Many smaller businesses billed overseas customers in sterling but paid for some of their raw materials in foreign currency, the BCC said, leaving them exposed to the costs of sterling’s fall unless they put up prices.

Sterling has fallen more than 15 percent against the dollar since June 23, and other business surveys have reported a big increase export orders – but any gains have not yet shown up in Britain’s official trade data.

The effects for businesses’ domestic profit margins was clear, with 44 percent reporting a fall. More than two thirds of firms expect sterling weakness to increase their costs in 2017, and more than half expect to pass at least some of this on to their customers.

The Bank of England expects consumer price inflation to rise sharply this year due to firms passing on higher import costs, and to reach 2.7 percent by the end of this year, up from 1.6 percent at the end of 2016.

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