This is the headline finding from the inaugural Global Trade Barometer from World First. The report examines the currency firm’s own data and the findings of a YouGov survey of 730 SMEs to give an analysis of how exchange rate fluctuations affect the UK’s businesses.
Holding back on investment
It found that one in four SMEs reported a negative impact in the first three months of the year. In addition, 15 per cent said that instability has had an effect on decisions around investment and growth.
And despite the pound experiencing a 75 per cent hike in volatility in Q1, SMEs have not made moves to protect themselves fully, extending the length of protective long-term contracts by only 35 per cent.
The trend looks set to continue with 31 per cent of SMEs saying they are concerned about the impact this will have into Q2, and more than half (55 per cent) expecting currency volatility to persevere.
EU top for trade
The data revealed that in Q1 almost half (49 per cent) of all SMEs’ foreign currency trade was made in euros, highlighting the EU as the UK’s major trading partner.
Jeremy Cook, chief economist at World First said: “The uncertainty around the outcome of the EU referendum has hindered SMEs’ ability to plan ahead and this is typified by indecision amongst SMEs during the quarter when it comes to managing their currency strategies.
“The fear is that by failing to hedge themselves much beyond June 23rd many UK SMEs are putting themselves at the mercy of large currency swings which could be detrimental to their business and the wider economy.
‘Choppy waters’ forecast
“Unquestionably this volatility is a real threat, particularly for net importers from Europe, as one scenario that has been mooted in the event of a Brexit is that we could see sterling decline by to such an extent that it reaches parity with the single currency.
“The outlook for the next quarter and the remainder of the year looks equally volatile, so UK SMEs will need to manage their currency exposure carefully if they are to navigate through what will be very choppy waters.”
Despite the uncertain outlook, SMEs are continuing to explore new markets, with New Zealand and India two of the most popular trading destinations during Q1.