How have UK businesses been impacted by forex in 2020?
As we hit the new year, many organisations across both Wales abd the UK hoped that 2021 would bring an end to the volatility faced by the financial markets. With the pandemic and Brexit looming, you can understand why. But, has this been the case?
A volatile market has always plagued many UK businesses, but with the additional fears around Brexit causing an unparalleled uncertainty since June 2016, many hoped that the new year would have started a little calmer.
Volatility is high as a result of Brexit
After an initial fall, the GBP finally recovered in the weeks following the vote to leave the EU. However, after the decision was made the French President at the time, Francois Hollande, led to an almost immediate crash that saw the British pound fall by more than 6% against the dollar.
Fast forward to the start of 2017 which saw Theresa May’s decision to call a June election, backfire on her when the Conservative party failed to form a majority government, further weakening the pound.
As we headed into 2019 things began to improve, with both the FTSE and GBP bouncing back early into the year. But, as the threat of a no-deal Brexit grew, the pound started to fall once again. The end of the year saw a high increase however, with the creation of Boris Johnson’s Conservative majority win and a renewed hope that we would reach a withdrawal agreement with the EU.
With a deal struck at the 11th hour, the market saw yet another bounce back. But, with tensions still fraught between the UK and EU, will the market remain stable for long?
What has the impact meant for British businesses and other manufacturers?
There are a number of ways in which forex volatility impacts British businesses. With the fluctuations causing chaos where payments an invoices are concerned, it can often be a challenging area of business to navigate.
If a business is wanting to pay supplier invoices and the pound is weak, it can cause a significant headwind for British businesses if the supplier is based internationally. Every percentage change in the exchange rate has a profound impact on a company’s bottom line, with a weak pound leaving businesses out of pocket. However, on the other hand, a strong pound will obviously mean that businesses get more for their money.
Unfortunately, forex volatility can also be problematic for businesses who want to forecast their sales. Whether it’s information that directors, business owners or investors need, any forecasts listed in another country can easily wiped out if the exchange rate moves against a business, or give it a boost if it shifts in their favour.
Has any good news surfaced?
It’s important to remember that it’s not all doom and gloom where forex and trading is concerned, so it could be worth giving it a go yourself if you’re always been interested. London is one of the largest global capitals for forex and is still performing well despite the ongoing issues. Plus, in the last quarter of 2020, the pound was higher than the US dollar, which is a pretty good showing compared to other forex markets.