The British economy is used to experiencing slight ups and downs despite a stable backbone that manages to sort things out in the end. This peculiarity has a lot to do with the fact that Britain has opted to retain its own currency despite having joined the European Union, where almost all countries share the euro as their common means of payment. The pound sterling is widely considered one of the most stable currencies globally, but recent events have caused a bit of a turmoil in foreign currency exchange rates – and for British companies that rely on imports and exports, this turmoil proves to be crucial.
Brexit Vote Affects Foreign Exchange Rate Prices
One of the most memorable events in a year full of unexpected news was the outcome of the 2016 Brexit referendum, when a majority of the British public voted in favour of leaving the EU. This decision has upset the usually stable pound and has also caused headaches for the euro currency – although the EU camp were more used to dealing with fluctuations due to the recent wave of hardships the monetary union had to go through. Yet, for the British, this upset has meant some unprecedented moves in the foreign exchange market when it comes to the pound’s exchange rates in relation to other strong currencies like the US dollar.
Understanding how the forex market is going to fluctuate is a hard game, as the industry is very sensitive to changes, but there are a series of signals that analysts can rely on to predict market movements – which include closely observing current events in order to examine how they could influence price trends. And, as far as signals go, the referendum vote came in with a bang, and it is here to stay. Leaving the EU is a long process and it has already come with many hiccups along the way, including rising foreign exchange costs that adversely impact British companies, such as the clothing industry.
Fashion Firm Superdry Pins Profit Loss on Pound Volatility
Superdry, a leading name in garment retail, has recalibrated its 2018-2019 profit predictions to account for two factors that seem to have unduly influenced sales. The first one is the uncharacteristically hot weather that many of its prime markets have experienced this fall – ranging from Great Britain and continental Europe to the US east coast. This has kept consumers away from investing in a new jacket or sweatshirt, leading to a £10 million drop in profit. The second prominent factor though is the increasing cost of foreign currency exchange, which has forced the firm to add a further £8 million to its relevant budget segment. All in all, Superdry is currently revising its original profit forecast at 17% below the initial assessment of £109.5 million – which would be a significant increase from the £97 million the company generated in revenue in 2017-2018.
The fashion giant isn’t the only one complaining in the industry: according to data published on The Telegraph on March 23, 2017, other firms including Next and John Lewis have experienced recession lately, in part due to currency fluctuations after the referendum. As the same source reports, some 80% of clothes sold by British firms are made in Asia and paid for in US dollars – so the pound falling against the US currency led to roughly 15% in extra manufacturing expenses. By contrast, rival brands that are based in other EU countries like Zara and H&M have managed to profit due to the stability of their home currency against the pound’s volatility.
According to news published on October 15, 2018 on The New York Times, Superdry saw its shares fall by 47% this year due to its financial situation, while rival UK brand Ted Baker has also seen its shares fall at 14% lower after it estimated that the rest of the year would be hard on the company, while Moss Bros Group, British experts on suits, have already stated that their prospects are looking bleak, too.
Milton Keynes Companies Set to Suffer in Uncertain Forex Landscape
The ripple effect of currency volatility is felt across other industries, too. Supermarket chain Sainsbury’s which in 2016 acquired leading catalogue retailer Argos for £1.4 billion, is also fearing a pound fall due to Brexit, as a report on The Guardian on March 16, 2017 reveals. The company plans to open 250 Argos stores in its supermarkets across the country, but the instability of the currency has slightly impeded its growth projection.
Sainsbury’s has also acquired Milton Keynes-headquartered electronics firm Bush and sister brand Alba, which might also feel the impact of pound inflation. Bush and Alba products are exclusively sold at Argos, so any hiccups to Sainsbury’s expansion plans due to currency troubles will also affect the electronics manufacturers.
Leading beverages manufacturers like Diageo and Milton Keynes-based soft drinks company Rubicon Drinks might also be adversely affected. UK-based Diageo has already seen its profits take a turn for the worst due to foreign exchange rates. The company that produces renowned brands like Guinness, Smirnoff and Baileys is estimating that its net sales will see a £175 million deficit and its profits will be down by £45m based on the foreign exchange rates with the Euro and the US dollar. The firm had also announced in 2017 that the impact of Brexit has led it to cut back on over 100 job positions in its operations in Scotland.
Even though the company remains optimistic about its long-term prospects, the volatility of the British currency has caused many leading companies to proceed with caution when planning ahead. Yet not all firms suffer: Domino’s Pizza has stated that its sales got a boost ever since the pound collapsed, as Britons started ordering in instead of eating out. Domino’s got the better side of the deal that saw restaurants like Prezzo and Jamie’s Italian take a hit.
Forex rates continue to be a headache for companies around the world, with Africa’s drinks giant Delta attributing product shortages on the foreign exchange market and leading electronics firm Philips with a strong presence in Britain stating that its Q3 results were lower than estimated due to currency fluctuations. Yet it seems that the majority of British companies are in for a particularly bleak forecast until a deal stabilises the national currency again.