Weak pound could lead to price increase by SMEs

Posted on 6 Feb 2017 by Fred Tongue

A new study by the British Chamber of Commerce says that the weak pound could lead to 50 per cent of all SMEs increasing their prices.

The survey by the British Chamber of Commerce (BCC) showed that over half of SMEs believe they will have to increase their prices this year, with almost the same proportion saying that the weak pound is hurting their profitability.

The rising cost of imports were, according to the BCC, “squeezing” the margins of SMEs.

Since voting to leave the European Union last June, Britain has seen a 16 per cent fall in the value of the sterling against the dollar.

According to Adam Marshall, director general of the BCC, inflation would be an “important concern for businesses over the coming year.”

He went on to say, “the depreciation of sterling has been the main tangible impact that firms have had to grapple with since the EU referendum vote.

“For firms that import, it’s now more expensive, and companies may find themselves locked into contracts with suppliers and unable to be responsive to currency fluctuations.”

The BCC surveyed around 1,500 SMEs between December 1 and December 19 2016.

The survey also showed that while one in four exporters said they had seen a positive impact from currency depreciation, almost the same amount saw a negative impact.

Another topic that was covered by the survey was managing currency fluctuations, with the results showing that 45 per cent of businesses do not currently manage currency risk. Of the 34 per cent that currently do, the most popular method was to invoice customers in sterling instead of the local currency.

The Bank of England forecast that inflation would run at 2 per cent this year, which was higher than the 1.8 per cent that it had forecast in November.

The Bank also revised the growth forecast up to 2 per cent from an original prediction of 1.4 per cent. Domestic demand had been higher than expected and there were “relatively few” signs of a slowdown in consumer spending, the bank explained.

However, it still sees the economy slowing in 2018, when it expects growth of just 1.6%.