Costs rise and margins fall on the back of the weaker pound according to a survey of 1,500 businesses by the BCC
The recent fall in the value of sterling is increasing the cost base of UK businesses and squeezing sales margins, according to the British Chambers of Commerce’s (BCC) latest International Trade Survey published today.
More than two thirds of the 1500 businesses surveyed in conjunction with moneycorp expect the fall in the value of sterling to increase their cost base in the coming year.
In turn, over half (54 per cent) of respondents expect to have to increase the prices of their products and services over the next 12 months, stoking inflation.
“The depreciation of sterling in recent months has been the main tangible impact that firms have had to grapple with since the EU referendum vote,” said Dr Adam Marshall, Director General of the BCC.
“Our survey shows that inflation is going to be an important concern for businesses over the coming year. While inflation rates aren’t high by historical standards, they are still putting increasing pressure on companies. Rising costs are squeezing margins, and forcing many firms to increase the prices of their goods and services.”
The results of the survey indicate that the recent devaluation of sterling is having a negative impact on the domestic sales margins of nearly half of businesses (44 per cent).
The effect on export margins is more diverse, with roughly equal levels of businesses reporting a positive (25 per cent) and negative (22 per cent) impact. This suggests that while the fall in value of the pound may be helping some UK exporters, it’s also hurting others.
The findings also show that nearly half of businesses (45 per cent) do not currently manage currency risk. For those that do, invoicing in sterling instead of their customer’s local foreign currency was the most popular means.
Marshall added: “Our research shows that the falling pound has been a double-edged sword for many UK businesses. Nearly as many exporters say the low pound is damaging them as benefiting them. For firms that import, it’s now more expensive, and companies may find themselves locked into contracts with suppliers and unable to be responsive to currency fluctuations.”
Lee McDarby, Managing Director of UK Corporate International Payments at moneycorp, said: “The timeframe for stepping away from the European Union is long, with at least two years of negotiation as and when Article 50 is triggered; this means that companies will have to be nimble and proactive when it comes to managing foreign exchange exposure.