It’s an exciting time for forex traders, with the pound fluctuating faster than you can say ‘Brexit’. On Friday, the price of sterling dropped 6% against the US dollar in just two minutes when the currency markets opened in Asia. This saw sterling sink to $1.1841 – the lowest point since May 1985.
It was a similar story as far as the euro was concerned, Friday morning saw the pound sink to €1.1031.
The reason behind the fall depends on who you speak to, but one of the frontrunning theories is that it’s directly linked to Prime Minister Theresa May announcing the timetable for Brexit. She said Article 50 would be triggered by March 2017 and suggested she would focus on reforming immigration controls, which could come at the expense of gaining access to the single market of the EU.
Other possible contributing factors include suggestions that some banks, such as Russian bank VTB, may move their European hubs out of London. Anxiety-inducing leaked documents warning that leaving the single market could cost the Treasury more than £66bn a year also haven’t helped.
A side effect of the fall is that the FTSE 100 has witnessed a boost, as many of the companies in the index generate most of their revenues abroad. The index hit its highest ever level during trading at 7,129.83 shortly after midday today.
At the time of writing, the pound is at $1.22 and €1.10. The Bank of England’s Michael Saunders told UK parliamentarians today that he’s not overly concerned about the speed in which the pound has fallen and said the currency is merely adjusting to the reality of Brexit. He does, however, believe the slump could push import prices up by 13% and increase inflation up by 1.5 percentage points a year.
Impact on UK tech
So that’s a very quick overview, but how is the UK tech scene feeling about it? Roger Planes of Silicon Rhino, a firm which helps companies fulfil their software development and other technology needs, said the price drop is hitting homegrown startups in the pocket.
“UK tech companies are suffering due to the fact that they are using many tools and services that are built and run by US companies. At Silicon Rhino, we rely on offerings from the likes of Amazon, Toggl, Slack, Squarespace – all of which charge in USD,” he said.
Planes went on to explain that any startup relying on Amazon Web Services for their cloud infrastructure, for example, has seen its bills increase significantly just due to the exchange rate.
“We have gone from quite a good position to having to scrutinise spend. The bigger the fall of sterling, the higher our monthly running costs are becoming – it’s not a case of the impact it could have, it’s the impact it’s already having,” he added.
The Barcelona-born entrepreneur said he’s fearful the UK may lose its crown as the number-one tech hub in Europe.
“Being an EU immigrant myself who moved here to start a company, the events over the last few months are quite concerning and I fear for how long the UK can maintain its leading position,” Planes concluded.
See the positives
Robert Dragan, CEO of ed-tech platform Learnium, brings a touch of optimism to the table. His firm has seen a surge in international enquiries about its online learning platform since the referendum result in June and believes the weakening of the pound has had a significant role to play.
With this in mind, he’s confident it’s not all doom and gloom for those in the UK: “Businesses have got to see the positives in the current economic situation and as a tech company with an international offering, the decline of the pound has made us more financially attractive to overseas businesses and strengthens our competitiveness on a macro level.
“The UK is a strong brand internationally and as the global spotlight falls upon the country as being more affordable, businesses who take steps to stand out to international organisations will have a great opportunity to win new customers overseas and expand in new markets,” he added.
Neil McGee, founder of peer-to-peer lending and property crowdfunding analytics tool P2x, said, within his area of tech, he reckons there could be some “big winners”.
“Foreign investors looking to take advantage of the fall to buy UK bricks and mortar can do so far easier through property crowdfunding platforms. For example, The House Crowd, Property Partner and Property Moose allow non-UK investments (aside from some specific rules re the USA and extra verification). As this catches on I see a far greater foreign demand for these services,” he said.
However, not everyone will be a winner. “On the other hand, peer-to-peer lenders focusing on commercial property or large redevelopment projects may struggle as market confidence is tested. So, it’s a mixed outcome for tech companies focused on peer-to-peer lending,” McGee added.
Other options
Albert Millis, of Virtual Umbrella, a marketing agency for VR companies and brands, said the fall in sterling’s price has encouraged him to consider accepting payment in other currencies.
@emilyspaven It means we’re starting to accept bitcoin and dollar as our main payment currencies.
— Spookaroo ?? (@Bertaroo) October 11, 2016
“We are planning to move to the US dollar as our main form of payment,” he explained.
His work straddles the games industry, where a lot of companies are paid in dollars, so Millis said it made sense for his company to make this move.
“We are also considering bitcoin as a viable alternative to Sterling, as more companies are accepting it everyday and it’s less volatile than the pound at the moment,” he added.
The VC perspective
Rory Stirling, partner at BGF Ventures, said the weakening sterling won’t drive early stage VCs to invest more in ‘bargain’ UK startups.
“This would be a very odd way to look at it,” he said. “The dynamics of venture capital returns are almost exclusively dependent on exceptional founders building market leading businesses. It’s possible that this is less the case with later stage venture opportunities but an investor would still need to take a relatively long term view on exchange rates,” Stirling added.
Laurence Garrett, partner at VC firm Highland Europe, said that, when it comes to investors, the fall in the value of the pound is of little consequence.
“The falling pound has little impact for venture capitalists. Many work on a US dollar basis and complete investments with dollar pricing,” he explained.
He went on to say the drop will drive sales internationally, as products become cheaper, so some VCs may see the firms in which they have invested get a little boost.
Overall, though, Garrett said this latest activity is nothing to worry about.
“We have seen large fluctuations in currency before and it rarely has a long term impact. People adjust and move forward,” he concluded.
Has your company been affected by the fall in sterling? Let us know and share your thoughts in the comments below.