Why manage currency risk in 2023?
In this year alone, the UK has seen the pound devalued by over 25% against the US dollar, forcing businesses exposed to overseas supply chains to re-budget and reforecast, often resulting in notable price increases for customers. To give some further context to these changes, a UK business with a requirement to purchase $1,000,000 per annum would have seen increased Sterling costs of over £200,000 this year alone, a rise which many companies cannot afford to absorb over such a short period.
With currency volatility hitting near record highs in 2022, businesses in the UK are being forced to implement and adapt robust risk management strategies. With the addition of UK inflation sitting at record highs, companies may also now struggle to absorb the additional cost of a weakening pound and the price volatility that comes with it.
It is increasingly evident that UK businesses can avoid these unwanted risks by implementing a more systematic approach to currency management. For businesses who may have managed their currency risk appropriately, the sudden devaluation of Sterling would not have been such a problem, providing them with time to readjust and adapt key costing and budget levels, whilst remaining extremely competitive in their respective market.
Foreign exchange risk is sometimes overlooked by business leaders and is often viewed as an unavoidable business cost, but this simply is not true. Expert currency specialists, who understand where currency risks arise, are becoming increasingly prominent, their intention to build bespoke hedging and buying strategies to provide enhanced pricing stability over a future period. This allows businesses to understand currency risk, and plan for market moves so they do not have a material impact on business performance.
With currency volatility set to continue and inflation still running at over 10%, it is more important than ever that UK companies take control of foreign exchange risk. Introducing a simple yet effective FX policy can pay dividends when these seemingly frequent ‘black swan events’ come to fruition.
One such provider, Lumon Pay (www.lumonpay.com), are happy to offer a free, non-obligatory foreign exchange health check, providing an insightful look into the effectiveness of any strategy you may have in place already.
We recently introduced a business to Lumon who had historically utilised their core bankers to facilitate their ongoing foreign exchange payments. A brief 15 minute exercise with one of their dedicated currency consultants resulted in projected savings of over £20,000 per annum, as well as insight and support into how their foreign exchange risk could be managed more effectively.
If you would like any further information on this topic, alternatively an introduction to one of the Lumon Pay specialists, please do not hesitate to contact a member of the Barnes Roffe team.
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PLEASE NOTE: By the very nature of this type of information the details of tax law might have changed since they were published, so contact your Barnes Roffe partner before acting on any matter contained in these documents.