U.K. Small Firms Not Prepared for Big Pound Slump After Brexit

(Bloomberg) -- More than a third of U.K.’s small- and medium-sized businesses see the pound dropping at least 10 percent after Brexit, but almost none of them are preparing for it.

Almost one in five SMEs believe the pound could reach parity with the euro or fall even lower for the first time in history, according to a report by payments firm WorldFirst released on Tuesday. However, as many as 95 percent of those companies don’t have a currency strategy to deal with a possible increase in supplier costs and reduced margins, the report said.

“It is almost like the majority of British SMEs have heard the weather warnings and seen the dark clouds gathering, but still need to see the first drops of rain to believe the storm is actually coming their way,” said Jeremy Thomson-Cook, chief economist at WorldFirst. “There is a worrying disconnect between what the U.K.’s SMEs are thinking will happen to the pound and what they are actually doing.”

The report underscores possibilities for disruption when Britain divorces the European Union early next year. It still isn’t clear if the U.K. can agree on a Brexit deal on time as pressure builds on Prime Minister Theresa May to amend her proposals or face a catastrophic defeat in Parliament.

A survey of foreign-exchange strategists last month predicted that the pound could drop about 8 percent if the U.K. crashes out of the bloc without a deal. Or it could rally 6 percent if Prime Minister Theresa May finds a way to get her current plan through Brussels and Westminster.

Hardly any small U.K. companies are prepared for the potential damage is there is no Brexit deal, WorldFirst said Tuesday. Just 13 percent of businesses plan to cut staffing, while less than a fifth would reassess growth plans in the event of a no-deal Brexit, according to the report.

To contact the reporter on this story: Anurag Kotoky in London at akotoky@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, David Goodman

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