What does sterling’s Brexit boost mean for UK manufacturers?

An ‘in principle’ agreement over the divorce settlement? Positive noises from Spain and the Netherlands about a frictionless trade deal? Or is it simply just a consequence of an unusually weak dollar post the US government shutdown?

The only thing for certain, as sterling continues its climb above the much heralded $1.40 mark, is that most businesses are uncertain about exactly what the future holds.

And nowhere is the pound’s unpredictability more troublesome than among British manufacturers.

For many, sterling’s prolonged period of weakness against the dollar since the referendum has boosted exports.

This is because a weaker pound has enabled them to sell their goods more cheaply, and increase profit margins as a result.

But how many of these firms would have factored in sterling’s recent upswing into their accounting and cash forecasting procedures?

The problem with geopolitical events such as Brexit is that it can be hard to tell what level sterling will be trading at from one month to the next.

This is exactly why manufacturing firms who haven’t prepared for the full effect of sterling’s rise need to consider a more comprehensive and fully integrated approach to hedging.

This involves adopting an approach that develops customised hedges to fit with the specific business situation at hand.

It may well be, for example, a firm that is exporting to multiple markets may require view of multiple currency pairs.

“A treasurer or financial director cannot possibly decide on the best hedging strategy if they do not have complete visibility into their full currency and commodity exposure”

And a treasurer or financial director cannot possibly decide on the best hedging strategy if they do not have complete visibility into their full currency and commodity exposure to actively manage situations such as this spike in sterling.

This approach offers businesses significant benefits in terms of reduced costs, as well as new sources of liquidity; not just for currency pairs such as GBP/USD, but also for the raw commodity they are exporting.

Trying to work out the full effect of the pound’s early year high against the dollar is tricky for any business at this stage.

“Treasurers and financial directors who, until now, have seen the fruits of a weaker pound, will be seeking a way to position themselves for when sterling falls again”

Treasurers and financial directors who, until now, have seen the fruits of a weaker pound, will be seeking a way to position themselves for when sterling falls again.

After all, without full insight into daily macro conditions to prepare for all possibilities, firms are left overly exposed to currency risk that can negatively impact their bottom line.

Preparing now to handle the impact of the pound’s boost is exactly what’s needed to ensure UK manufacturers are in the best position to manage whatever Brexit might next throw at them.

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