Currency Watch: UK SMEs not reacting to Euro crisis

It’s human nature that we are always reluctant to change our tried and trusted way of dealing with things.

We often leave things to the last minute, refusing to steer from the chosen path, unless the situation has become intolerable.

The problems in the global financial system may not have been caused by this laissez faire attitude, but they have certainly been exacerbated by it. However, despite the intense climate, the vast majority of small and medium enterprises (SMEs) have still not confronted the problem and tackled their exposure to market volatility.

According to a recent survey, it was found that only 17% of UK-based SMEs have set up protection against the precariousness of the currency markets for longer than the next 30 days. That number falls to just 10% when you extend the period past six months.

In other words, only one in 10 SMEs who are involved in importing or exporting goods have deemed it necessary to protect themselves from on-going exchange rate fluctuations, in the most unpredictable economic climate the vast majority of us have ever experienced.

This is perhaps surprising, but then I guess it’s understandable that financial planners can be reluctant to change their habits.

The fears over hedging and committing to a price level are obvious. Nobody wants to be left behind.

However, products are available that allow a company to remain nimble enough to benefit in the good times, but remain protected when the markets turn against them.

This week we saw the Eurozone crisis stumbling onward, with the euro now trading at 10 month lows against the pound.

The UK’s economic data released this week hardly made for happy reading either. Inflation was slightly down, as expected, but the unemployment figures brought the strength of the recovery (or rather the lack of it) into sharp focus.

The pressure on the pound remains, and it is no clearer when we will see some strength returning to bolster the UK economy.

It all makes for an unpredictable future for the euro/sterling pairing; it’s anyone’s guess what we can expect in six months’ time.

If you’re involved in a business which imports or exports you’ll already know all about how the markets can move to make a serious impression on your bottom line.

The problems in the eurozone have been well documented, and with the future of the euro remaining in serious doubt, if you’re exposed to the situation the time to act is now.

Jeremy Cook is chief economist at World First foreign exchange