SME confidence has been hit by Brexit, new research has shown. World First’s Q2 2016 Global Trade Barometer, conducted immediately in the wake of the EU referendum vote, capture the knee jerk reaction of small business confidence. SMEs moved quickly to protect their businesses from extreme volatility in currency markets “With the highest concentration of hedging trades in 2016 taking place on Friday 24th June.” The importance of using the right hedging strategy in such turbulent times is clear, despite some small businesses failing to adequately plan for all eventualities.
The flurry of activity post-Brexit was in contrast to the period leading up to the referendum, when uncertainty over the result caused most to stay away from any currency hedging efforts. “SMEs’ use of hedging products (namely, forward contracts and currency options) declined throughout Q2,” World First says, “Falling 54% in the week before the referendum compared to their activity at the start of February.”
Concerned and unsure
Overall, the decision to leave the EU was met with a broadly negative response from SMEs. A significant portion (46%) disagreed with the statement that the outcome of the EU referendum vote had been positive for their business’ future prospects, whilst only 29% agreed (a further 25% said that they still didn’t know).
Commenting on this quarter’s Global Trade Barometer, Jeremy Cook, Chief Economist at World First said: “Friday 24th June will go down in history as the one of the worst days in sterling’s history, following huge fluctuations as Brexiteers eventually won the day. It may also prove to be a pivotal day for the UK’s importers and exporters, with the latter rubbing their hands with glee whilst many of the former would have been left with their head in their hands.
Cook went on to say that while it was easy to get swept up in all the apparent doom and gloom as the UK wrestles with its political and economic future, “This is an opportunity for some businesses to flourish. Exporters have seen their price competitiveness improve in light of the recent fall of the pound and a cheaper sterling could allow for an investment boost. The focus for UK SMEs should be to implement a ‘fix-it’ currency strategy and protect themselves from any future volatility.”