The pound has lost more than 10% of its value against the US dollar and the euro since the UK voted to leave the European Union.
Dramatic exchange rate swings will inevitably have major consequences for the UK’s army of small and medium-sized businesses operating internationally. On a positive note the weaker pound makes UK exports cheaper to overseas buyers. Indeed, the UK trade deficit narrowed sharply in July, helped by a 3.4% rise in exports.
The flipside to this coin is that companies importing their materials are seeing their costs of doing business rise sharply. A falling pound pushed British companies’ raw material costs up by 7.6% in August from a year earlier – the fastest annual rate in almost five years.
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
Could the pound rebound?
A speedy turnaround in the pound’s fortunes looks unlikely. Rising import costs are expected to feed into higher consumer prices over time; the Bank of England expects inflation to reach its 2% target in the first half of 2017. Even so, the Bank’s focus is squarely on supporting activity rather than controlling inflation at present, and the prospect of UK interest rates staying lower for longer weakens sterling’s appeal to international investors. Preparations for withdrawing from the EU are also in their infancy and uncertainty over the UK’s future trade relationships will cloud the economic outlook for many months to come.
A simple way to reduce your company’s foreign exchange costs
A crucial aspect of running a successful business is keeping any cost increases to a minimum. For companies relying on sourcing supplies from abroad, even relatively small exchange rate movements can have a material impact on profitability. Yet many small business owners often fail to secure the best rates available, or even realise there are simple ways to reduce currency risk.
When making or receiving international payments most businesses will probably go straight to their bank - a move that could harm profits. Whether your business is exporting or importing, a simple way to help maximise profits this year is to take a proactive approach to foreign currency requirements. While using your bank might seem like the most convenient method, using a dependable currency broker such as the HL Currency Service could save your business money.
Choosing the right currency broker is essential for your business. It is important to find a broker which offers competitive exchange rates, holds and transfers your money securely and can offer the services you need. We offer quick, easy and secure currency transfers for over 20 different currencies.
Save £,000s compared to your bank
If you make frequent overseas payments you could save thousands of pounds by using a specialist currency broker. Typically our service will save you up to 2% on a currency transaction in comparison to traditional banks. If you are transferring £20,000 per month, that’s a saving of £4,800 for the year.
Many businesses continue to use their bank to convert their currency instead of shopping around for the best exchange rates – often provided by specialist currency brokers.
Secure and low-cost international payments
Banks can charge up to £40 per transaction in transfer fees. For small and medium-sized businesses making monthly international payments through a bank, this means they could be paying up to £480 per year in transfer fees alone. On top of that there are also commission fees, flat fees and minimum charges to consider. Most are unaware there is a quick, easy and lower-cost alternative available.
Specialist currency brokers, such as the HL Currency Service, typically offer lower transfer fees (often free) than banks meaning they can substantially reduce the costs of transferring money overseas. You should ask your currency broker about any fees included in the currency transfer before placing the deal.
Fix your exchange rate
Additionally, a broker can offer forward contracts. This allows you to fix an exchange rate for up to two years in advance. The currency markets are constantly fluctuating and are affected by a variety of economic factors. This offers protection should the rate move adversely, though it is also important to note it removes the potential to benefit from any subsequent favourable rate movements.
To find out more about our Currency Service, please give one of our currency specialists a call on 0117 311 3257 (Mon-Fri, 8am-6pm).
Editor's choice: our new weekly email
Sign up to receive the week's top investment stories from Hargreaves Lansdown
Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.
The information in this article is not intended to be advice or a recommendation to buy, sell or hold any of the currencies mentioned. No view is given as to the present or future value or price of any currencies. The Hargreaves Lansdown Currency Service is a trading name of Hargreaves Lansdown Stockbrokers Limited, which is a wholly owned subsidiary of Hargreaves Lansdown Plc, One College Square South, Anchor Road, Bristol, BS1 5HL. Company Registered in England & Wales No. 1822701.
Hargreaves Lansdown Currency Service is provided by Hargreaves Lansdown Stockbrokers Ltd which is authorised by the Financial Conduct Authority (FCA) as a Payment Institution under the Payment Services Regulations 2009. The Firm Reference number is 149970. You can look this up on the FCA register website. The marketing of the currency service is not regulated by the FCA.