UK small and medium-sized enterprises (SME) managers and owners could be set for some sleepless nights if the US Federal Reserve choose to raise interest rates later this week, with seven out of ten admitting their business could be better prepared to protect itself from currency volatility caused by a rate hike, according to the latest survey from international currency experts World First.
The survey of over 1,000 senior decision makers at UK-based SMEs trading overseas found that whilst 88% said they understood the potential impacts of a US rate rise on currency markets, 70% felt their business could be better prepared to deal with exchange rate volatility. The extent of the impacts are highlighted by the fact that more than half (51%) confess that the threat posed to their business by currency risks has kept them awake at night and one in four (26%) admit to having been severely impacted by currency movements in the past.
Businesses with larger turnovers of more than £500 million were the worst prepared, with 75% suggesting they could be doing more to manage their exchange rate risks whilst companies with turnovers between £250,000 and £500,000 felt they were the best protected (64%).
UK SMEs could be set for more bad news, with 53% stating the strength of sterling is damaging their business’s profitability and margins. With those surveyed making an average of 20 international payments a month and 86% of payments involving either euros (54%) or US dollars (32%), UK SMEs must manage their currency strategies more effectively to combat the effects of a divergence in monetary policy between the two regions.
Jeremy Cook, chief economist at World First, said: “UK SMEs remain dangerously exposed to currency market volatility at what is a crucial time in macro-economic policy. With the US and the UK’s economic fortunes on the up while key trading partners like the eurozone and China continue to falter, businesses must do more to protect themselves from exchange rate fluctuations in order to protect margins and facilitate further growth.
“British businesses with a global outlook need to become much more hands on in managing and reviewing their currency strategy, particularly as many have only ever operated in a low interest rate environment. These mini-multinationals are now entering unchartered waters and it’s important they are aware as to how their currency exposure could impact their bottom line. A better understanding of the benefits of hedging will be crucial for any business exposed to the currency markets in 2016.”