Most British Businesses Expect Higher 2018 Costs Because of a Weak Pound

  • BCC survey also shows 46% of firms don’t manage currency risk
  • Pound’s slump since Brexit vote is weighing on U.K. companies
Algebris’ Alberto Gallo says the pound is pricing in "relatively low tail risk" when it comes to Brexit.

The majority of British businesses expect their costs to rise over the next year as a result of weakness in the pound, but almost half are doing nothing to mitigate their foreign exchange risk.

The British Chambers of Commerce said 63 percent of firms anticipate price gains, compared to just 6 percent expecting them to decline. Sterling has dropped about 10 percent against the dollar since the U.K.’s vote to the European Union in June 2016 and the median forecast in a Bloomberg survey indicates it will likely fall further over the next twelve months.

Even so, 46 percent of the 1,300 companies surveyed by the BCC have taken no steps to manage currency risk, with smaller firms the least likely to have hedging measures in place.

“Companies are clearly feeling price pressure from the depreciation in sterling,” said Adam Marshall, director general of the BCC. “While businesses await answers on Brexit, and a return to a stronger currency, they must take the necessary steps to prepare for potential risks.”

While the pound’s slump has helped make British exports more competitive, the impact of rising costs is increasingly weighing on the economy. Services providers saw input prices increased the most since 2011 in November and prices charged rose at the fastest clip since 2008, an IHS Markit report said on Tuesday.

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