US rate rise could affect UK SMEs


The US Federal Reserve has announced it is raising interest rates for the first time in a decade. Rates were increased from the range of 0% to 0.25% that had held sway for the past ten years to a new range of 0.25% to 0.5%.


A rate rise can be seen as a good thing for the US as it represents a vote of confidence in the country’s still recovering economy. However, the increasingly interlinked globe means that what happens in the US economy inevitably produces shockwaves throughout the rest of the world.


Stock markets in the US, Asia and Europe have already surged but it’s the currency markets that are particularly sensitive to moves in interest rates. Increased volatility could have a major impact on UK SMEs that trade overseas but many admit to not being prepared for the risks.


A survey by international currency experts World First found that 88% of senior decision makers at UK-based SMEs felt that they understood the potential impact the US rate rise could have on international currency markets.


70% said their businesses could be better prepared to deal with exchange rate volatility however. More than half (51%) even confessed that the threats posed by currency issues had kept them awake at night. Just over one in four (26%) reported they had been badly hit by currency movements in the past.


Volatility in the currency market can leave firms open to risk as the relative value of overseas contracts and sales can change substantially. This could leave a business struggling to recoup losses and could even lead to a position where the business requires business rescue or insolvency advice.


Many small businesses operating internationally will have formed in the past ten years and will only have ever experienced operating in a low interest rate environment. As well as volatility in the currency market, the US rate rise could also signal an earlier rate rise in the UK. The Bank of England does not officially follow the Federal Reserve but a US rise could make it easier for the BoE to follow suit.


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