Welcome to In Conversation, foreign exchange insights and discussions from HiFX to support businesses that send or receive international payments. This article was written by Trade Finance Global, experts in trade and invoice finance solutions for UK businesses to import and export goods.
Brexit has largely been seen as an opportunity for UK exporters, given the pound has been broadly at its lowest levels since 1985 against the US dollar.
However recent data from the Office for National Statistics showed that the UK saw a widening gap between imports and exports, which recently grew by £900m, to £5.1bn. Despite the fact that the investors could see this as worrying, possibly indicative of a recession, the negative balance of trade was actually because UK imports skyrocketed (albeit unexpectedly) and UK exports also increased (by a little).
So what does this mean for exporters?
Nigel Wilson, boss of Legal & General, said “There’s too much doom and gloom around. The UK remains a great place to invest.”
For UK exporters, some have coined it the ‘post-Brexit export boom’ – with sterling at its lowest level, the UK could be an attractive place for exporters as it can compete with global markets.
A recent SME report conducted by the CBI also says that SMEs will start to shift towards exporting globally, as they consider currency such as the US dollar (and previously the pound) as expensive.
Taking a deep dive into different sectors, the cars export industry is particularly exposed, given that the UK exports 40% of its cars to Europe. In terms of pricing and a weaker pound versus the euro, it makes exporting vehicles to Europe cheaper, although the uncertainty of post-Brexit tariffs to European counterparts could potentially mean cars could face an additional tariff when exporting, making it less favourable to trade in the UK.
A great time for wine?
The UK wine making industry, estimated to be worth around £100m per year is another sector which could see opportunity. Given that Britain is one of the biggest net importers of wine, it’s likely that there could be a shift towards locally produced wine, and a shift from importing to exporting wine as it becomes cheaper for European counterparts to purchase.
In the recent CBI report, the first of its kind since the EU referendum, smaller manufacturers saw a small rise in exports and stable deal flow. Export optimism among SMEs grew moderately according to the report, despite the fact that general sentiment around future-proofing the business and trading conditions fell sharply.
What about finance for exporters?
“Now is a great time for UK exporters looking to expand overseas into other markets”, says James Sinclair at Trade Finance Global. Banks are lending at historically low rates to allow for competition and growth when trading. Not only are we at a 9 year low on interest rates, the rise of alternative financiers allows for SMEs to access different types of debt funding to grow and fulfil invoices and orders without running into working capital problems.
James said: “It is however a tough time to be trading, as confidence remains fairly low, and FX rates are incredibly volatile”.
Businesses should think about currency exposure and risk mitigation to ensure that they are not exposed to FX swings and have a competitive rate to purchase their goods or services as well as pay their end debtors or customers.
To find out how HiFX could help you minimise your business’ exposure to currency fluctuations, please call our Corporate Team on +44 (0) 1753 623 555.
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