Spring Budget update – our key takeaways

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Blogpost from Chamber FX partner, Moneycorp

The Chancellor opened his budget announcement with positive news from the Office of Budget Responsibility, which has forecast the UK will now avoid a recession in 2023 and inflation will slow to 2.9% by the end of 2023, down from 10.7% in the fourth quarter of 2022.

How has Sterling responded?

  • GBP/USD is lower (at 1.2020*), but that is a factor of broader market risk aversion
  • GBP/EUR is up nearly 1% on the session

This is reflective of the pound broadly faring much better and is perhaps a bigger sign of a positive market reaction to Budget.

The ongoing fallout from the SVB crisis has now morphed into vulnerable bank stocks, such as Credit-Suisse. We often see this in times of uncertainty when investors flock to the relative safety of the US government treasuries. Read more here.

Key outcomes from the budget:

  • Free childcare of 30 hours per week for working parents is being expanded to cover one and two-year-olds. This will extend to all children from 9-months old in September 2024.
  • There will be a major shake-up to benefits for people with disabilities. The Work Capability Assessment will be scrapped in favour of a new assessment that will encourage more disabled people to try work without fear of losing their benefits.

Energy Prices

  • The government’s help with energy bills is being extended for a further three months
  • £200m has been earmarked to help brings bills in-line with direct debit payers for customers using pre-payment meters
  • There will be £63m to help leisure centres cope with rising energy bills

Pensions

  • The lifetime allowance on tax-free pension contributions, which currently stands at £1.07m, has been scrapped
  • The annual tax-free allowance has also increased from £40,000 to £60,000.

Tax

  • Fuel duty has been frozen for another year
  • Corporation tax is being increased (as planned) from 19% – 25%
  • Alcohol tax on draught products in pubs is to be up to 11p less in the pound compared to shops and supermarkets

Environment

  • Hunt has made a £20bn commitment over 20 years on low-carbon energy projects, with a focus on carbon storage and capture
  • Nuclear power is to be re-classed as ‘environmentally sustainable’ to drive investment in the energy sector.

Defence

  • Defence spending is being boosted by £11bn over the next five years

*Indicative rate as of 15/03/23 at 16:42

This does not constitute financial advice.

How Foreign Exchange Can Save you Money

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Five ways looking at your foreign exchange provision can help you cut costs in 2023

The outlook for 2023 is bleak. Soundbites from experts worldwide are touting global recession, downturns in growth, increasing inflation, and housing market crashes. The UK, particularly, is set to suffer this year with the war in Ukraine still impacting the cost of living and rising interest rates reducing demand for property while forcing up rental rates and creating a perfect storm to undermine the UK housing market.

Needless to say, times will be tough for UK businesses as the purse strings of the average household tighten, and the effects of slow growth and continued inflation begin to have more of an effect on the day-to-day. 2023 should be about saving, but making savings in the right places, being shrewd about utilising the services that are available to you, and leveraging them to offset increasing costs.

Something often overlooked is saving money through your foreign exchange provision. This can be a smart way to save money quickly without cutting back on other areas of your business.

Here are our top five ways to save money by optimising your foreign exchange provision:

  1. Make sure you’re getting the most competitive rates

When you’re exchanging large amounts of money; a small difference in rate can make a big impact.  We source our rates through our panel of 18 liquidity providers and but many banks are bound by a single rate.

Make sure you’ve managed your execution risk because depending on how much you’re exchanging, the difference could be in the thousands – multiply that over the year, and your savings become significant.

  • Avoid unnecessary fees

Watch out for hidden costs – some foreign exchange providers charge you to open a corporate account and to hold various currencies, while others charge fixed fees on transfers.  Compare the fee structure against your foreign exchange needs, as different providers will work better for your business. 

  • Open a multiple-currency account

If you receive multiple currencies, make sure you have an account that supports that. It’s easy to incur charges and fees inadvertently when you receive different currencies into your UK bank account – and once it’s done, it’s difficult to do anything about it.

With an account that holds multiple currencies, you avoid these fees. It’s an easy move to cut costs and we’ve seen clients save over $10,000 simply by opening a multi-currency account.

  • Protect yourself against risk

In 2022 the GBP/EUR rate fluctuated between 1.21 and 1.07 during the year; this represents a difference of more than 12%.  The impact of these fluctuations are present all the time in business, for example when you raise invoices in foreign currencies.

In an ideal world, they would all be paid within thirty days but sometimes it can stretch over months. If there’s been a big swing in the exchange rates during that time it’s bound to have meaningful effect on the trade – whether it eats into your profit margin, or swallows it up completely.

To mitigate this kind of risk, your organisation can explore Forward Contracts. This allows you to hedge the rates on invoices for future payments, protecting you against volatility.

  • Get some expert guidance

FX experts work with you to understand your exposure and suggest the most appropriate currency tools that will enable you to save money on your exchange transactions. An experienced currency management professional can execute your risk management strategy in line with your risk appetite and investment objectives.

We know it’s not always easy to see the true cost of foreign exchange, so at Moneycorp, we start every client relationship with a free audit.

By looking at up to 12 months of data, including the times and dates of your transactions, the exchange rates, and the type of products your business uses, and what currencies you trade, we help paint a clear picture.  This allows us to understand your foreign exchange history and the needs of your business to show you accurately how and where we can save you money.

Moneycorp can then help you protect your business from unwanted exchange rate movements with various strategies to suit your risk appetite and business plans.

Written by Sophia Awan, strategic partnerships manager, Moneycorp.

For more information or to arrange a free FX audit, please contact your engagement manager.

Photo by Omid Armin on Unsplash

Foreign exchange risk management

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Trading internationally can leave your business exposed to the risk of currency fluctuations.  The measure of the risk depends on the currencies paid and received as well as the volume of your business tied to international markets and your future plans for growth.

Taking GBP/USD as a current example, at the beginning of 2022 the rate ran at 1.35 and on 16th September it was 1.15, this currency swing can potentially have a huge impact on the cost of your imports.

Did you know the Chamber can provide a foreign exchange currency audit though our partners Moneycorp, who are able to offer a currency health check that can provide a snapshot of your currency exposure, and can support in the development of a strategy for your business to mitigate that currency risk and cost in the future.

Moneycorp have resources to support with this including developing your currency risk hedging strategy.

Money market hedges allow companies to lock in the value of a foreign currency transaction when making a foreign exchange or transaction. This allows the domestic company to secure the value of its partner’s currency, albeit denominated in the currency used by the domestic company, in advance of the agreed transaction.

These hedges tend to be more complicated than forward contract, but they are ideal in situations where forward contracts are not easily available for a given currency (this can occur when a company is not big enough to obtain a forward current facility from its bank).

You may find that market money hedges are best suited to one-off transactions, due to the fact that they involve a greater number of distinct steps than forward contracts.

To find out more about Moneycorp’s services or as a member of the chamber you can arrange a free currency audit by contacting [email protected]