Is the volatility of sterling affecting your business?
The decision to leave the European Union has affected Sterling in more ways than one. With the future looking uncertain for the British economy, it is very likely that your business will be affected. The level of impact will depend on both the size and nature of your business.
With the words “Brexit means Brexit” ringing in the ears of the British people, without any clear direction of the future, it is of little surprise that businesses are feeling nervous. As soon as the results of the referendum were announced, sterling started to become very volatile. The value of the pound dropped considerably and it continues to be unstable. This may have a direct or indirect impact on your business because it will clearly impact on imports. If you are a clothing retailer, for example, it will mean that you may have to pass these costs on to your customers. Similarly, if you have an electronic business, you will probably be affected by the volatility of the weakened pound and an increase in the cost of imports. Many electrical and clothing imports come from abroad, and whilst the effects may not be felt immediately, they will be felt next year for certain. Food businesses could also be hit with the volatility of the pound although the precise risk of increases in produce are not yet clear.
Investment and skilled migrants
It isn’t just a rise in prices on imports which is a problem. The risk to a loss of skilled migrants may also impact your business, and new trade agreements which have yet to be determined may also have a bearing. Businesses that invest in the UK may decide to delay investment or withdraw entirely as a result of Brexit and the volatile pound, especially when Article 50 is activated
Foreign investment has always been strong in the UK but the uncertainty of the future of the British economy means that investors may be feeling nervous. Naturally that could reduce future investment and affect sterling further.
Inflation is another future risk for businesses which means that the UK population may end up having to tighten their belts – of course, this has the potential to affect businesses and some may even consider leaving or relocating.
Risk Assessment
It is hard to predict how long the pound will remain volatile for, however, the uncertainty of the future in the UK will remain until firmer plans are put in place. Now is the time for businesses to start a risk assessment to ensure that strong plans have been put in place should any of the risks occur. The sheer level of uncertainty does make this particularly tricky because much of the risk assessment will be undertaken on potential scenarios which are not yet clear.
The next few months are a crucial timeline, and the next two years will be particularly challenging. What we have outlined above is focusing on the negatives and they may be over-stated. Nobody really knows yet. In the long-term, leaving the EU may be great for Britain and be fantastic for business. If the UK can strike a good deal with Europe and quickly forge trade agreements with other countries, then we may come out the other end much stronger. The pound will no doubt recover once plans are put in place, but what remains clear is that at the moment there will be impacts on imports and foreign investment, so you need a strategy in place to ride the storm.
For any advice about business planning in the post-Brexit world, please contact us now.
Is the volatility of sterling affecting your business?
Morgan Reach is a well-established firm of accountants with offices in London and Birmingham. Well known for its innovative approach and placing its clients at the forefront of the practice, Morgan Reach provides a variety of accounting services such as compliance, tax services, company secretarial services, business consultancy and accounts as well as strategic growth advice for an extensive range of business sectors including manufacturing, healthcare, construction and property, retail and entertainment, media and sports.
DISCLAIMER: This article is for guidance only, and professional advice should be obtained before acting on any information contained herein. Morgan Reach Chartered Certified Accountants cannot accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the content of this article.
Is the volatility of sterling affecting your business?
