Exchange rate volatility is a worry for corporates
Exchange rate volatility (36%) and cashflow issues (32%) continue to be the biggest concerns for businesses over the next 12-18 months, according to the latest Business Sentiment Survey from HiFX.
Interestingly, availability of finance (13%) was least likely to cause concern, perhaps indicating that corporates are finding it easier to gain access to finance now that the economy is turning a corner.
Just under half (48%) of businesses have also increased their foreign exchange transaction sizes over the last six months, this compares to 36% six months ago. When asked the reason for this, smaller companies (24%) are more likely to increase their transaction volume to try and get better deals through larger transactions. Conversely, larger corporates increased volume to protect themselves against volatile FX markets, with just under a third (31%) stating that this was the reason for doing so. For large and small corporates, business growth was a reason for 13% of corporates.
Jason Gaywood, director at HiFX said: “There’s a clear difference between smaller and larger corporates when it comes to reasons for increasing transactions and it’s interesting to see that business growth was stated as a reason. While it appears smaller corporates are looking for the best deals, larger corporates are ensuring they’re protecting themselves against volatile FX markets. What is important to remember is that although GBP/USD and GBP/EUR are currently trading at a tight range, they could break out at any time, so those transacting large volumes of money rely on their relative inactivity at their peril. This is where a company such as HiFX can help add value by talking through potential market changes.”
The HiFX report also asked business about their views on announcements made in the Chancellor’s Budget. Although it was heralded as the Budget for business and exporters, the research reveals many corporates disagree. Just one in 12 (8%) think that the announcements made by the Chancellor will help to increase the volume of goods they export. And many are also unsure announcements made will have any positive impact on the growth of their business; over two fifths (41%) said announcements wouldn’t help and a further 34% said that they were unsure.
Of the announcements made, plans to reduce energy costs for businesses (32%) topped the list of changes corporates thought would aid business growth. However, there were clear differences in priorities between smaller and larger clients. The reduction on business rates was selected by two fifths (41%) of smaller corporates, whereas reduced energy costs for businesses (42%) were top of the agenda for larger corporates – just a fifth (23%) of smaller clients selected this option.(See table in notes to editors for full break down).
Jason continued: “Our research reveals many corporates are unsure whether the announcements made will have a positive impact on their business, and they certainly don’t think they will help increase the volume of goods they export. The Chancellor laid out an agenda with the intention of helping UK business growth. However, it’s clear more needs to be done if we’re going to create a more sustained economic recovery, which is powered both by consumer spending and UK exports.
“When looking at the UK economy and UK data, we predict a continued improvement in the overall tone in the coming months. While this in itself is clearly good news, it will paradoxically raise the spectre of when, rather than if, interest rates are likely to increase. An early move may well cap inflation concerns but equally could choke the fledgling economic growth we are currently witnessing. As ever, timing and a steady hand will be everything with the General Election looming next year.”