Depreciation of the pound since the EU referendum has significantly affected the way business owners manage exchange rate risk, as new research reveals the impact of currency volatility on small exporters.
In a survey on the attitudes of small business owners trading internationally, risk management firm AFEX found that 71 per cent of exporters saw currency volatility as the biggest threat to their ability to manage currency risk.
Currency risk, or exchange rate risk, refers to the possibility that the devaluation of domestic currency could impact on the value of exported goods.
Since the Brexit vote in June 2016 the pound has significantly depreciated in value, falling by over 18 per cent next to the US dollar.
One common response to currency volatility was to increase the prices of goods and services. Over a third of small exporters claimed to have raised prices since the Brexit vote, while 17 per cent expected to raise prices over the next three months.
The findings suggest an end to a “honeymoon period” for small exporters that saw many capitalise on the initial devaluation of the pound to offer goods at a cheaper rate overseas.
Small business owners responding to currency volatility by raising prices followed high-profile price increases at Microsoft, Apple and Tesla.
Despite the uncertainty, over eight in ten expected to maintain or increase their levels of international trading throughout 2017. Some one in ten exporters claimed currency volatility had “accelerated” business growth.
Commenting on the findings, AFEX CEO Jan Vliestra concluded that the effects of Brexit were “looming large” for small businesses trading internationally, as concerns over currency volatility grow.
“The steep decline in the value of the pound in the immediate aftermath of the vote and its sustained weakness since has made many business owners look closely at how they’re doing business internationally,” Vliestra said in a statement.
“These findings reveal that many [business owners] are looking at ways to factor in this uncertainty and are revisiting their business models be that by changing their pricing, renegotiating their contracts or more actively managing their currency risks.”
Small business owners have voiced fears over the future of international trading after Brexit, and a recent report from the Federation of Small Businesses (FSB) showed that a third of exporters, regardless of destination, expected to see a decline in business.
The outlook was starker for owners importing from overseas, with just seven per cent expecting to see a rise in trade upon leaving the EU.
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