02/06/2015

By Philippe Gelis, CEO and CO-Founder of Kantox

Following the Queen’s official opening of parliament, UK businesses could well slip into feeling as though all is certain for the future of their company. With the uncertainty of a hung parliament or a minority government a distant memory, this could be the time that UK businesses let their guard down. However, we are still in the midst of potentially massive changes, and businesses need to be at the top of their game to ensure that they have a plan of attack for any outcome that might come as a result of the new government.

One key area that businesses need to consider, particularly those that are exporting and importing, is how global currencies have been affected by the recent changes. In the weeks following the Conservative party’s unexpected victory, returning the party to a majority in the House of Commons, the pound rose from a pre-election 1.34 against the euro, to around 1.39 recently. But this period of sterling strength is far from certain of lasting. The currency will face a number of big challenges over the next few years, perhaps most imminently, the likelihood of an EU Referendum. Whilst historically the British don’t like taking a punt into the unknown and the chances of a Brexit might be slim, businesses must prepare for any outcome.

With David Cameron currently in talks with the EU to secure “substantive changes” ahead of the referendum, the ‘buzz’ around this is likely to affect GBP yet again. Cameron is reportedly aiming to bring forward the referendum on EU membership to next year, as early as May 2016 – meaning that businesses must start gearing up to prepare for an outcome, which could go either way. In the event of a ‘Yes’ vote, a Brexit would not only rock the currency markets, it would send shockwaves throughout UK businesses.

A recent report by Grant Thornton found that the UK’s potential exit from the Eurozone is a key concern for businesses. Whilst the membership of Greece is more uncertain currently, the report found that 61% are more concerned about the UK – highlighting the gravity of the impact that a Brexit would cause. In a recent CBI report, 86% of those questioned think that leaving the EU would have negative consequences for British businesses wishing to access union markets.

Businesses must prepare to renegotiate terms with companies they have dealings with based on inevitable policy changes. Beyond the UK and the remaining EU nations, countries further afield would also need to rethink their business strategies, if faced with a potential Brexit. The UK would be less attractive as a trading partner or source of investment for companies across the globe if it were to no longer fall under the single market remit, which could have potentially damaging effects on businesses relying on imports.

With so much uncertainty surrounding the EU and a potential referendum on Britain’s membership, businesses must bring this to the forefront of their agendas and consider either outcome. Whether this involves exploring new trading routes, or stabilising business relationships with trading partners to ensure that a potential Brexit would not harm operations, this is a topic that cannot be overlooked.

Meanwhile, another outcome of the election that should be on every business’ radar is the almost whitewash victory for the Scottish National Party (SNP), which won an astounding 56 out of a possible 59 seats in Scotland. This is likely to see the Union’s resolve tested like never before. A second referendum on Scottish independence is not out of the question and should the Conservative government fail to sufficiently accommodate the SNP’s anti-austerity mandate, which contradicts the current Conservative policy, we could see a wedge driving between Scotland and England. Whilst they are likely to agree on budgetary issues, problems could still arise which is likely to drive exchange rate volatility for the pound and for businesses that have operations in Scotland.

It is essential that whilst the new government settles in, UK businesses keep on top of policy change and political unrest that could affect their business. Whilst the UK is likely to continue strongly over the next few years, companies should keep a particularly close eye on the subsequent currency volatility that can result from the uncertainty around potential changes, and have back up plans in place should they rely on trading with other countries.