|
The new frontline: UK SMEs are facing a massive beating over the depreciating Pound. Warnings were made today of a possible parity between the euro and sterling as the pound plunged again this week.
New record lows were set with the euro reaching its strongest level since the creation of the currency in 1999 (82.09p). As of Wednesday 12pm, the current interbank rate will buy you as little as €1.22 to the pound.
The CEO of specialist currency broker, Caxton FX, Rupert Lee-Browne, said parity could be reached as recession deepens in the UK, affecting property, retail sales and interest rates.
His comments came as the euro has euro strengthened nearly 3% over sterling so far in November and as it hit an all time high against sterling (€1.2176) yesterday.
Caxton FX analysts blamed the latest plunge in sterling on a record drop in the cost of goods leaving UK factories and confirmed market suspicions that inflation has peaked and is falling.
Fuel and raw material costs also fell 5.6%, the fastest decline in 22 years, giving the Bank of England further scope to cut interest rates in the coming months.
Alex Dunn, Senior Analyst at Caxton FX comments, “We will see further interest rate cuts over the coming months. Many expect another cut of at least 50bp in December, which will further erode the yield appeal of the pound. Moreover, worsening economic conditions in the UK, including property and retail sales, will accelerate the rise of the euro even further.”
Impact on SMEs
The Bank of England this morning stated that it did not expect to see any major benefits to UK industry from the falling Pound.
In normal circumstances a falling Pound would mean UK goods are cheaper to European buyers, increasing demand and stimulating local industry.
However the Bank said that because the global economy was slowing down it did not expect that external demand to be strong enough to boost foreign demand for UK goods.
Earlier warnings over exchange rate
SMEs were this morning warned that failing to hedge against movements in exchange rates could mean that the value of transactions can be hit dramatically, reducing both turnover and profit.
With some of the recent sharp movements seen in rates, what might have been profitable business for a company just weeks ago can rapidly become loss-making.
Alex Sullivan, Head of Corporate Foreign Exchange at World First, explains: “Much has been made of the Bank of England’s 1.5% rate cut and Friday’s shocking US employment figures. However, despite what ought to have been a big negative for the dollar, sterling continues to weaken, taking many companies by surprise.
 |
digg 
del.ico.us 
Newsvine 
Reddit 
Furl 
technorati 
Subscribe to this comment's feed
