The Brexit fog thickens as the endgame approaches

I believe it is now widely held that the Chinese curse “may you live in interesting times”  is actually apocryphal, but as the plot twists of the Brexit saga become ever more violent and unpredictable, I suspect that Theresa May and her Cabinet colleagues may well feel as though they are on the wrong end of a curse, of European descent.

The only plausible assessment that appears to be emanating from the corridors of power this week is that frankly no-one really has any idea where this journey is heading, or quite how it will end. The apparent lack of a majority in the Commons for pretty much any “deal”, real or desired, certainly supports the idea that it would be wise to avoid writing off any scenario, all bets really do appear to be off.

After a prolonged period of relative calm, sterling this week appears to have woken to the increasing likelihood of some of the more unpredictable scenarios, and is displaying a weakness in the last 36 hours that is probably reflecting concern not only about what the UK’s future relationship with the EU will look like, but also who may end up minding Larry the No.10 cat during 2019. To those of us of a “certain age” who were actively involved in the FX markets in the late 80s and early 90s, sterling slipping 1% or so might be remembered as a fairly standard morning’s activity, but nowadays it is enough to ruffle feathers well beyond the City’s dealing rooms.

I don’t think it is being overly dramatic to say that as the uncertainty grows, we may well see a return to the sort of chaotic markets that were standard practice back then, and I’m not convinced many SMEs are remotely prepared for the impact those levels of volatility will have on their businesses. It is surely bordering on insanity to not be attempting to mitigate FX risks for known cash flows over the next 12 months, and yet ask around, far too many are sleep-walking into this period of unprecedented uncertainty with their eyes firmly shut. “We aren’t currency speculators” some say, “so why behave like one then?” is the obvious response.

If you are an SME with exposure to the level of sterling in coming months, then pretty near the top of your “to-do” list should be seeking assistance in understanding, quantifying, and working to minimise the risks posed to your profits, and therefore your business, by currency volatility. It may very well be the case, to borrow a lyric from the days of a previous sterling crisis, that “you ain’t seen nothing yet….”.

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