Navigating Currency Turbulence in Business Planning
UK business leaders face significant challenges from ongoing foreign exchange market turbulence as they prepare their 2026 budgets. Persistent instability driven by fiscal policy changes, global tariff developments, and geopolitical uncertainty continues to create a volatile environment for financial planning.
Sharp currency movements can rapidly undermine carefully constructed budgets, with 2025 witnessing renewed volatility across major currency pairs. According to Bloomberg data, the GBP/USD pair swung dramatically from approximately $1.21 in January to nearly $1.38 by July, while EUR/USD experienced comparable fluctuations within a 17% range.
The Real Impact on UK Businesses
These currency shifts create substantial variations in input costs, export revenues, and margin projections during budget finalisation. Even minor exchange rate adjustments can produce disproportionate effects on business performance.
For instance, a UK company importing goods priced in euros could encounter cost increases of 5-10% from a single market movement. Conversely, British exporters billing in US dollars may find future profits significantly reduced if sterling strengthens against the dollar.
Four Essential Strategies for Budget Resilience
Establish Clear FX Budget Rates
Businesses should define precise foreign exchange budget rates to distinguish operational performance from market movements. All assumptions must remain realistic and grounded in current forward rates rather than historical figures that may no longer reflect present market conditions.
Conduct Thorough Stress Testing
Adopting a more resilient approach involves modelling potential currency movements of 5-10% in both directions. Understanding how sterling fluctuations could affect profit margins helps align operational strategy with financial forecasting, avoiding overreliance on a single, static exchange rate.
Connect FX Risk to Business Drivers
Rather than selecting arbitrary rates for budgeting, companies should link currency risk management directly to underlying exposures and strategic objectives. Identifying which currency exposures most significantly impact cashflows or margins is crucial, as different exposures affect various business areas differently.
Build Flexibility into Planning
The annual budget should function as a living document, regularly reviewed and adjusted when currency movements breach predetermined thresholds. Modern budgeting emphasises flexibility and foresight, enabling businesses to adapt swiftly to policy changes or geopolitical developments.
Steering Through Market Uncertainty
While currency risk cannot be entirely eliminated, it can be effectively managed. Success in this volatile environment comes from combining disciplined financial management with proactive strategies. Budgeting establishes the course, but foreign exchange markets determine the tides. The best-prepared businesses navigate both with awareness and confidence.
Important notice: The views expressed represent contributor opinions at publication time and may not reflect institutional positions. This content should not be construed as financial advice or recommendations. Investec Bank plc operates under authorisation from the Prudential Regulation Authority and regulation by both the Financial Conduct Authority and Prudential Regulation Authority.
