Since Britain’s decision to leave the EU, the UK has experienced a whirlwind of changes, including the political and economic trade agenda which has altered the UK trading relationships for goods and services, not only in Europe but across the world.
What the Current Trading Environment Means for Your Business
The UK’s trade position has weakened over the last two decades, with the nation’s share of import trade dropping by a staggering 30%, and exports by over a half! Previously the UK had ranked in 6th position amongst other exporting giants – America, China, Germany and Japan – yet its position has continued to drop since 2016.
Despite this, Britain has remained Europe’s key destination for foreign direct investment, with the country reporting goods export figures of over £41bn for 2017. But as Britain prepares to leave the EU, it looks away from Europe for major trading deals, and toward the Commonwealth, Malaysia, India, United States and Mexico for trading partnerships that we hope will replenish our economy.
Reports suggest that despite the national interest in new trading relationships from Brexit, worries are escalating, not only in our ability to identify and secure lucrative opportunities but regarding the risks that Brexit poses to business operations (with Santander’s latest ‘Trade Barometer’ recording concern rates at 66% amongst British companies). From the same findings, 73% of the 1,000 businesses surveyed stated that a UK economic slowdown would have a negative impact on their business.
The pound saw a 12% drop against the USD after the referendum, marking its 30-year low. For any business importing from the US, or acquiring goods and services from the country, there has, understandably, been a substantial impact on their P&L.
The weakening of the GBP against the dollar and the euro resulted in several negatives. The referendum has had a serious knock-on effect on imports, with prices rising as a result of a weaker pound and a subsequent rise in inflation (which went up to a historic 3.1% in November 2017, and 3.6% for food price inflation). Oil price increases and sluggish income growth contributed to the slower economic growth and led to a pitiful 1.4% UK growth forecast for this year.
That being said, UK exporters, predominantly in the services industry, benefitted from the decreased value of British currency. Surprisingly, the UK economy has fared quite well, all considered, with bank chains supporting their UK locations and the BOE’s measures to minimise risks and stabilise the markets.
Brexit has presented a monumental and complex challenge that many organisations hadn’t, and are still struggling, to prepare for. Active debate continues on whether Britain will face a hard or soft Brexit. A hard Brexit outlook will see the GBP weaken, yet Trump has recently commented that a soft Brexit will kill the UK’s chances of an important US-UK trade deal. A soft Brexit, on the other hand, would see a strengthening of the pound as anticipated by FX movements and more wiggle room with setting up a trading agreement with the EU, but more red-tape when it comes to trading with non-EU countries.
With still no real certainty in the direction we’re heading, having a currency strategy can help to weather the potentially volatile currency currents we’ll find ourselves in, in addition to safeguarding your bottom lines with competitive rates and hedging arrangements.
How Trade Finance Will Help Your Business Trade
Concerning both international and domestic trade, Trade Finance encompasses Structured Finance, Receivables Finance, Export Credits, Bank Loans and Guarantees, and Letters of Credit. It is one of the traditional ways of financing which aids importers and exporters in financing trade, without the need for balance sheet or working capital finance within the company to finance the entire trade.
According to the latest figures, a majority of business is operated on an Open Account basis, leaving organisations open to substantial threats such as fraud and uninsured transactions, and can see companies struggle to conduct business in various markets. Trade Finance, on the other hand, puts structures in place that assist businesses who are competing for large, multi-supplier projects across many countries. This methodology helps to diversify revenue streams, open doors in new markets and create healthy competition in the global marketplace. Essentially, trade finance functions by introducing a third-party to reduce payment and supply risks, whilst ensuring the importers receive their goods (as agreed) and exporters receive extended credit, and thus, important for all businesses looking to secure finance and their trading operations. It works by confirming banks within alternative jurisdictions of trade to eliminate big risks that come from trading in other countries, such as no payment, lost or damaged goods in transit and payment schemes.
Free your working capital; export more; expand your trading web whilst mitigating supplier risk, all with the assistance of trade finance advice from specialists at Expense Reduction Analysts. We help you achieve a strategic approach to finance and banking by providing practical and impartial advice and solutions. The Banking and Payments team have developed a host of specialist services, encompassing Liquidity and Cash Management, Borrowing and Growth, Payments and Trade Solutions, to assist each organisation with their individual needs and requirements. Get in touch with the Banking and Payments Team today for your no-obligation consultation.
Article by: Harvinder Rattan