The future of the UK’s international trade is still uncertain as Brexit looms and the terms of the UK’s departure are not yet set in stone. Financial Director reported that the future relationship of importers and exporters with Europe and the world after Brexit continues to be the subject of much debate.
What has been happening?
Brexit has indeed already tarnished the economy and is affecting UK exports, despite the wishes of many Brexit supporters who had claimed the opposite. It was perhaps partly due to Brexit that, in February 2017, Secretary of State for International Trade, Dr Liam Fox, had changed the Conservative government’s expectations of “doubling UK exports to £1 trillion by 2020.”
While not up to £1 trillion, Fox would later change the Government’s target to increase exports as a percentage of GDP from 30% to 35%, after positive ONS figures were released for the period between November 2017 and November 2018. In particular, it was shown that the number of SMEs exporting to overseas markets increased by 6.6% to 232,000 (9.8% of all SMEs), and of larger businesses exporting increased by 6.1% to 3,500 (41.7% of all large business). The UK’s total exports increased to £630bn in November 2018. While towards the right direction, problems still remain and many exporters are considering costs and how to grapple with the changing landscape, while continuing to develop their business.
According to SMEs, a volatile market is one of their biggest problems. As the Institute of Export and International Trade reported, “While it was expected that a weaker pound would make UK exports more competitively priced, this was offset for many SMEs by both more expensive imports and currency volatility. In fact, (34%) said at the time that currency volatility was the greatest challenge they faced. So, whilst a weak pound may have had a positive impact, the uncertainty certainly didn’t help SMEs manage their currency costs or importing foreign goods and services.”
Alongside worries about the effects of a weak pound, businesses have been concerned with “export licences, customs declarations and VAT invoices” in order to protect themselves and comply with legislation.
Brexit is a major disruptor of international trade. According to government statistics, the EU is currently the UK’s main trading partner, with 44% (£274 billion) of UK exports to the EU each year. UK imports from the EU were estimated to be 53% (£341 billion).
In terms of VAT and customs duty, Brexit will affect taxes and result in higher import taxes and more complex administrative procedures. Brexit also means defining the trading relationship between the EU and the UK, which will demand further negotiations, as well as the trading relationship of the UK with other countries.
Additionally, currency traders are currently worried that a hard Brexit—exiting the EU without a deal—might even be back if Nigel Farage’s Brexit party does well in the European Parliament elections. A large Eurosceptic vote would open the path for Boris Johnson to succeed Theresa May, analysts have noted.
Universal Partners FX
As an international business which specialises in helping other businesses deal with currency fluctuation and international transfers, UPFX understands the difficulties and challenges of transferring large amounts of money. Whether Brexit comes with the promise of future relationships or with added uncertainty, your business, nonetheless, will most likely be facing a volatile pound and an unpredictable market. To mitigate unexpected market movements and protect your business, get in touch with your dedicated currency dealer at UPFX to discuss how they can help you save money and hedge your funds.