Brexit has been coined as one of the most crucial political events to happen in United Kingdom
for almost 50 years. This came after the decision by the UK to depart from European Union in
the 2016 EU referendum. Simply Factoring Brokers spoke to Head of Trade, Mark at Trade Finance Global for a deeper dive on what’s going on.

Senior officials are still trying to thrash out the details of the Brexit process, a lot is uncertain, but
SMEs are preparing for different scenarios as well as figuring out how to survive in the different
trading landscape post Brexit. In order for UK SMEs to facilitate growth as well as expansion,
they need look for other alternatives beyond the EU.

Knowing well that SMEs contribute a significant part of the United Kingdom’s economy that
equates to 51% of all private sector turnover and 60% of all private sector employment in the
UK, it is paramount that they get the support they need over the coming years.

Pound Sterling Price Changes Affects SME Hedging Behaviour

SMEs need to some form of currency and margin protection in the period of post Brexit. As a
result of a strengthening pound towards the end of 2017, SMEs looked to buying forward
contracts to take advantage of inflation, pressure on margins and bottom line profitability (Figure
1).

Fig. 1

Hedging the US dollar and Japanese Yen

More recently, hedgers are looking to add demand in the USD and JPY by concentrating on
post-referendum highs in both GBPUSD and GBPJPY in order for them protect themselves at
all times against currency volatility.

Currency volatility can gradually affect SMEs, and they need to be on the lookout as the
currency market fluctuates in order for them to survive and to continue to thrive in the global
market. We all know that volatile currencies always possess a significant risk to the SMEs and
may affect them negatively

Even the experts had to add on this matter. Chief Economist at WorldFirst, Jeremy Cook, stated
that: “While the hedging data may suggest that it is business as usual for internationally focused
SMEs, the truth is that the circumstances they are dealing with are incredibly tough.”

According to Cook, hedging may seem like business as usual for SMEs, but that is not the case
the process is not an easy one.

Mr. Cook added that: “Short-term spikes in sterling are leapt upon in a bid to offset higher input
prices caused by higher energy costs and the legacy of the devalued pound while margins
remain tight.”

There is truth in this statement from Mr. Cook, and this has even led to SMEs to be divided on
Brexit Impact.

Brexit Impact on SMEs

There are sentiments by SMEs on the impact Brexit will have on business and all the other
regions they operate in. It actually shows that SMEs is divided on Brexit Impact and we have
data to validate that. The data on small businesses shows that 47% were more worried about
the potential impact while about 41% were not concerned with that impact.

Some sectors did show varying results such as the transportation and distribution sector, which
had 64% of those worried about the impact of their ability to be able to move people as well as
goods across borders. The most confident sector was the construction, which had only 36% of
those worried about the impact of post-Brexit will have on them.

This brings us as to why UK decided to leave the EU in June 2016. And this was a result of
trying to avoid the impacts of currency volatility on the UK SMEs. After the exit, the pound
dropped within a few months later, but a few negotiations over the year has seen SMEs
confident again and feeling more positive about any currency volatility impact on their business.

In 2016, we had about 45% of SMEs worried about currency volatility, while now the value has
reduced by about 8%. We have only 37% of the SMEs concerned about currency volatility. The
large-scale movements have been few as well as far between, and Sterling is becoming more
steady as compared to last year. This has dramatically increased SMEs overall confidence in
managing currency risk.

Cook had to say that: “Like the rest of the nation, SMEs are divided on whether Brexit will be a
catastrophe or an opportunity for trade and growth. Nevertheless, almost half of all SMEs are
worried about the potential impact it could have on their business and the region it operates in.
The onus is on the government to reassure these businesses removing uncertainty about their
future so they can position themselves for growth.”

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Summary
Where Are UK SMEs Hedging Their Bets Post-Brexit?
Article Name
Where Are UK SMEs Hedging Their Bets Post-Brexit?
Description
The uncertainty of Brexit has been a consistent issue for SME owners. Here we shine some light on how it can affect you, and how you can best prepare.
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Simply Factoring Brokers
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