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EU to remain UK’s top trading partner

Published: Tuesday 09 January 2018

By David Fuller

The results of a new British Chambers of Commerce survey, conducted in partnership with DHL, has found that over the next three years, the top two markets which most businesses plan to start or continue exporting to are Western Europe (44 percent), and Central and Eastern Europe (32 percent).

What’s more, Western Europe (36 percent) is also the market which most firms plan to import from.

The results of the survey, based on the responses of over 1,300 businesses, underline the importance of the UK and EU reaching a business-friendly trade agreement that minimises costs and trade barriers.

The importance of currency exchange

The report reveals that both British and European businesses will be keeping a close eye on the currency exchange market over the coming months.

In the wake of June 2016’s Brexit vote outcome, Sterling values slumped against most major currencies.

The Pound plummeted nine percent versus the US Dollar the day after the surprise result, and seven percent against the Euro. This was the biggest fall in the Pound for over 30 years. While in recent months the Pound has shown signs of improvements, its value still remains well below what it was worth prior to the referendum.

Unsurprisingly, this is a situation that businesses in the UK and on the Continent are monitoring closely.

The British Chamber of Commerce survey found that 36 percent of exporters’ strategies over the next three years will primarily be influenced by currency exchange. The only factor deemed more important was demand from overseas buyers (48 percent).

Likewise, 41 percent of businesses looking to import say they will primarily be influenced by exchange rates. Only worries over a lack of suppliers in the UK was of more concern to potential importers (43 percent).

 “The devaluation in Sterling seen over the past 18 months has been a double-edged sword, providing a welcome boost for some exporters, but a drag on many other firms, who report higher costs for their inputs and components,” explains Dr Adam Marshall, Director General of the British Chambers of Commerce.

“While UK firms would like to be able to source inputs on the domestic market, our evidence suggests that swapping imports for domestic supplies isn’t presently an option for many. If businesses can’t find or afford to source their supplies domestically, easy and quick access to foreign markets is crucial.”

At a time of such global uncertainties in the exchange rate market, it is of little surprise that so many businesses are turning to currency exchange specialists, such as Halo Financial, for guidance (www.halofinancial.com).

Foreign exchange specialists like Halo offer businesses major advantages over other currency exchange options. Not only does it tend to be a cheaper option for the business, but foreign exchange specialists offer certain tools which can protect businesses against the risk of subsequent exchange rate movements. For example, they may provide ‘forward contracts’ (www.halofinancial.com/money-transfer-services/forward-trades), which enable a business to secure a prevailing exchange rate for up to two years in advance.

A good place to do business 

Perhaps surprisingly, given all the doom and gloom forecasts that have surrounded the ongoing Brexit negotiations, the UK is still seen as a good place to do business.

There is little doubt that a number of UK companies are holding off on investments to see how Brexit effects trade relations. Yet many experts still view Britain’s business climate as attractive.

In fact, the UK actually topped Forbes' Best Countries for Business 2018 survey. The report noted that while uncertainty surrounding prevails, the country’s economy hasn’t actually been hit as hard as some may believe. The report noted that gross domestic product grew 1.8 percent in 2016, behind only Germany’s 1.9 percent growth among the Group of Seven industrialised nations. Steady growth continued throughout 2017, while house prices are up and unemployment has sunk to a 42-year low at 4.3 percent.

In fact, the UK ranked in the top 25 countries (out of 153 measured) in 14 of the 15-metrics tracked by the Forbes survey. The only metric it didn’t make the top 25 in, was political uncertainty (where the UK ranked 28th).

Indeed, a Lloyds Bank survey released in December revealed that confidence among British businesses has picked up to its highest level since July as firms expect a busier 2018. However, confidence levels still remain well below the level seen before last year’s Brexit vote.

The future

While the Forbes report will be seen as a welcome boost for those who predicted an economic meltdown in the immediate wake of the Brexit vote, the future may not stay so rosy for long.

The report suggests that the UK’s reign as the best country to do business in may not last too long. Depending on the final outcome of the Brexit negotiations, the UK may find attracting business talent from the European Union far harder. This could lead many businesses to leave the UK. If they can’t employ the best talent, or have to cut through too much red tape to do so, then it may be that more attractive options remain elsewhere.

It is for these reasons that the British Chamber of Commerce is convinced that any future UK-EU trade deal must minimise barriers to trade.

“Now that negotiations on the future UK-EU relationship are set to begin, businesses need clarity on the practicalities of the future trading relationship between the UK and EU without delay,” says Dr Marshall. "High tariffs, cumbersome customs procedures, as well as conflicting regulatory requirements, can deter firms from trading overseas, so a future agreement between the UK and the EU must minimise barriers and costs, to allow firms on both sides of the Channel to continue trading as freely as possible.

“Both the UK government and EU Commission must work together in the new year to move towards a frictionless trade deal that works for both British and European businesses.”
For more information, infographics and the latest currency insights, visit www.halofinancial.com/news