BCC International Trade Survey: Post-Brexit fall in sterling to push up prices of products and services

The decline in the value of the sterling following Britain's decision to leave the EU is expected to push prices of both products and services higher. According to the latest International Trade Survey published on Monday (6 February) by the British Chamber of Commerce (BCC), 54% of respondents were looking at increasing prices of their products and services over the next 12 months.

The survey also threw light on cost base and profit margins as 68% of the respondents were expecting the decline in the pound would increase their cost base in the coming year, while 44% said that the weaker sterling would have a negative impact on domestic sales margins.

Around 1,500 businesses participated in the survey, which was conducted in partnership with Moneycorp between 1 and 19 December 2016.

However, the effect was found to be more diverse on export margins. While 25% of the respondents said the weaker sterling will have a positive effect on their margins going forward, 22% said it will have a negative impact.

Commenting on the same, Dr Adam Marshall, director general at the BCC said in a statement, "The depreciation of Sterling in recent months has been the main tangible impact that firms have had to grapple with since the EU referendum vote.

"Our research shows that the falling pound has been a double-edged sword for many UK businesses. Nearly as many exporters say the low pound is damaging them as benefiting them. 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."

"Our survey shows that inflation is going to be an important concern for businesses over the coming year. While inflation rates aren't high by historical standards, they are still putting increasing pressure on companies. Rising costs are squeezing margins, and forcing many firms to increase the prices of their goods and services."

The survey also pointed out how businesses were managing the risk of currency fluctuations. Around 45% businesses said they do not currently manage currency risk, while 46% said they would not expect to manage it over the next six months. Of those that currently do, 32% said they were mitigating the risk by invoicing in the sterling instead of customers' local foreign currency. This was found to be the most popular method.

Marshall explained, "Currency fluctuations aren't something in the UK government's direct control, and they are likely to continue as the Brexit transition unfolds. Ministers must do everything in their power, meantime, to help businesses keep costs down and stay competitive. Alleviating many of the up-front costs facing companies should be a priority for the Budget in March – starting with the sledgehammer of business rates."