Sterling weakness threatens 1,000,000 SMEs

Moneycorp, 17 Dec 2008, David Kerns

• A quarter of small and medium size companies admit their business will be under threat if the Pound continues to fall*
•  Over two thirds of importers claim the weak Pound has already had a ‘significant’ or ‘serious’ impact on their business*

As Sterling continues to weaken in the currency markets, research from Moneycorp reveals that small and medium sized companies are concerned about their future. A quarter of the 1,000 CEOs, CFOs and managing directors of SMEs that were surveyed in November 2008 claim their business will be under threat if the Pound continues to decline.

“We could see the Pound fall even further, as the prospect of additional interest rate cuts becomes more and more likely,” commented Mark Deans, Dealing Manager at Moneycorp. “Continued Sterling weakness will have a huge impact on importers,” he added.

Importers have been hit hard by the Pound’s 20% fall against the Euro and 25% fall against the Dollar this year – over two thirds of those surveyed claim the weak Pound has already had a ‘significant’ or ‘serious’ impact on their business*. Poor exchange rates have increased costs for importers and as the economy lurches into recession, they are facing a double-whammy of higher prices and reduced demand.

“SMEs are the backbone of the British economy and to see so many suffering at the hands of Sterling weakness is a serious concern,” said Mark Deans. “The Pound’s vulnerability is one of the most troubling aspects of the current economic climate for importers. Other major currencies like the Euro, Dollar and Yen have remained fairly buoyant, but confidence continues to drain from the Pound.

“We expect the Bank of England to attempt to counteract the economy’s expected deep and prolonged contraction by cutting interest rates to a new record low in January – which is likely to discourage further investment in Sterling.”

Research from Moneycorp also reveals that SME importers expect the Pound to continue its decline – 56% have placed forward contracts to sell Sterling for delivery at a later date*. This allows them to benefit from the exchange rate that was available when they made the contract, even as the Pound continues to fall. However, while this approach offers SMEs some protection, many companies have already used up their more favourable forward contracts and are increasingly exposed to the ever-weakening Pound. 

* Moneycorp surveyed 1,000 CEOs, CFOs and managing directors of SMEs in November 2008 using One Poll.
There are 4.5 million SMEs in the UK - Federation of Small Businesses, November 2008.