Don't List on Homepage Finance

Brexit: Startups and the sterling sting

The weak pound is bad news for startups importing goods from Europe – but does the currency crash have positive outcomes too?

26 Jul 2016

The dive in sterling from $1.47 on June 23 to $1.29 two weeks later has had a severe impact on British businesses reliant on buying foreign products. It reached its lowest level against the dollar in three decades following the referendum results. Food and fashion businesses buying goods from overseas have been especially exposed. Alan Yau, the founder of several restaurants in London, said: ‘A weak pound means higher ingredients and produce import costs. 60 per cent of our produce is imported from the EU.’

Meanwhile, David Keyte, founder of the menswear brand Universal Works, said: ‘I manufacture 25 per cent in the UK, which should mean I can export at a better price. But I buy materials – Italian, Portuguese and Spanish fabrics – in euros, so we’ll definitely have an increase in costs. Leaving the EU will make British products more expensive and less competitive against European brands.’

Shrinking margins

Many companies are feeling the sting from not hedging their exposure to currency fluctuations. Natali Stajcic, founder of The Pressery, a drinks business, says: ‘The impact on sterling hammers our margins from buying European almonds. It now makes sense for us to focus more on European sales and even move our office there. It would give us stability, certainty and better margins.’

Notionally, there’s an advantage for companies selling overseas, as products are cheaper, but, as several firms pointed out, many British products rely on imported raw materials, so any currency advantage is lost. However, British services and creative output, such as films, will now be cheaper to foreign buyers.

Another side effect is that UK startup valuations are suddenly much more attractive to foreign buyers looking for acquisitions.

This story is part of a special report on Brexit’s impact on startups – covering fintech, currency, investment, talent, regulation and funding – featured in Courier Aug/Sept.