World First’s inaugural quarterly Global Trade Barometer highlights how uncertainty around the outcome of the EU referendum is leaving UK SMEs reluctant to commit to long term currency contracts, with a total of £35.6bn in international payments potentially exposed to currency swings.

The report, which combines World First’s own data and a YouGov survey of 730 UK SMEs, reveals how exchange rate fluctuations affect UK businesses with 1 in 4 reporting a negative impact in Q1 2016 and 15% stating that volatility has impacted investment decisions to support growth.

Historically, UK SMEs have enjoyed the protection of longer-term forward contracts to hedge against currency movements for an extended period. However, World First data from Q1 shows a bucking of this trend due to fears over a so-called Brexit. Despite the 75% increase in sterling volatility, SMEs have only extended the length of protection by 35% across the same period, leaving many SMEs unhedged during a time of considerable volatility in the wake of the EU referendum. (Figure 1).

UK SMEs worried amid expectation of further volatility in Q2

Looking ahead to Q2, concerns around currency volatility look set to continue with 31% of SMEs stating they are worried about the impact this could have on their business and 55% believing sterling will continue to be volatile in the next quarter, with 13% expecting this period to be very volatile.

World First’s research also highlights the importance of the EU as the UK’s biggest trading partner with Q1 data showing the euro was the most traded foreign currency amongst UK SMEs, accounting for nearly half (49%) of all foreign currency trades (Figure 2).

Commenting on the data, 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.

“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.”

UK SMEs continue to explore new export markets

Despite the volatility, UK SMEs are continuing to show appetite to trade internationally and explore new export markets with New Zealand and India two of the most popular destinations during Q1 2016.

This follows a 30% quarter on quarter increase in the volume World First’s UK SME customers either bought or sold in two these currencies.

Continuing Jeremy Cook, Chief Economist at World First said:Given the weakening of sterling over the last quarter, Q1 2016 was very much an exporters market with many UK SMEs taking advantage of these favourable conditions to explore new destinations for exporting their products.

“However, nearly 50% of SMEs have never traded in another currency, revealing a reluctance on the part of UK SMEs to export. This highlights a huge growth opportunity should widely held misconceptions around potential barriers be overcome by campaigns such as Exporting is GREAT.”

Commenting on the first Global Trade Barometer and Export Week, Jonathan Quin, CEO and Co-Founder of World First said: With the quarterly World First Trade Barometer we hope to shine a light on the behaviours and outlook of the most important contributors to the UK economy – our SMEs, many of which are ‘mini-multinationals’. In particular, the first Trade Barometer clearly shows that there are huge exporting opportunities, which is very apt given that this week is Export is GREAT Week. More initiatives like Export is GREAT Week will help encourage the exporting of our world-leading industries and expertise to all corners of the globe, and are hugely welcome.”  




1All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 730 senior decision makers in small/ medium British businesses. Fieldwork was undertaken between 29th March – 1st April 2016.  The survey was carried out online. The figures have been weighted and are representative of all British business size.

World First data on client contracts was collated between January 01 2016 and March 31 2016 and refers to UK corporate desk clients only