British businesses expect to reduce use of the euro

UK businesses are forecasting that their use of the euro in currency payments when trading internationally will be reduced in the next six months, according to research by East and Partners.

In a survey of more than 2,200 businesses, the researchers found that as the UK continues its political negotiations to leave the European Union, businesses in the UK expect to reduce their use of the euro by 7.8%.

The decline is expected to be greatest among smaller corporates - those with annual turnovers of between £20m-£100m - which have forecast on their use of the euro will fall on average by 23.1%.

Use of the China renminbi in UK foreign trade is expected to increase by 2.7% in the next six months: Pixabay

New channels of trade

Many of the reasons behind these changes indicate that business leaders expect tougher terms of trade within the EU due to Brexit, and consider it prudent to open up new channels of trade or further develop existing trading partnerships outside the EU.

"While uncertainty may persist politically with Brexit, UK business is clearly planning to trade more beyond the EU,” said Simon Kleine at East and Partners.

He added: “UK businesses’ forecasts for currency usage going into 2018 show that they are definitely looking to trade more widely.”

'Other' currencies

As a result, UK companies expect to increase their use of currencies outside of the eurozone as they do business with a wider range of trading partners.

While small increases in the use of the US dollar and Chinese renminbi are expected - 1.2% and 2.7% respectively - the biggest increase - of 37.7% - was forecast to be in the use of "other" currencies.

These other currencies include Asian units such as the Hong Kong dollar and, most notably, the Indian rupee - a sign that UK businesses are looking to establish firmer links with Commonwealth partners.

Pound to rally

Forecasts that will please the Bank of England as it continues to battle inflation indicate that most businesses expect the pound to rise over the next six months. They expect the pound to be up about 6.8% to €1.188 against the euro, up 6% to $1.39 versus the dollar and up about 6.5% to Rmb9.331 on the renminbi.

“The international trading plans of UK businesses as the country heads towards Brexit and their optimism for the pound will be welcome news to the government,” said Kleine.