Posted by Allison on 1 April 2009, 16:36
There cannot be anyone left in the developed world who has not become aware of just how serious the economy's problems are at the moment. We all feel the effects in different ways. Some have stopped using their currency calculator to look for good value holidays abroad; some have lost their jobs as a result of the negative impact on businesses, and we are all wondering what the future will bring.
It is quite alarming just how many businesses are in some kind of trouble as well. Many businesses release their pre-tax profits and earnings so that they are made public, and many have gone from profit to loss in a year.
One of the latest companies to make this type of announcement is Rolls Royce. This is a big name company, and it has suffered greatly in the current climate. As this news article on the acclaimed CNN website reveals (you can read it here) the company has had to cope with a loss in this last year.
Of course it isn't alone in this respect. But the aspect which defines this particular announcement is why it has experienced a loss. It has come as a result of the continued poor performance the British pound has put up of late. The main culprit of the loss is the current low exchange rates between the pound and the US dollar, and the pound and the Euro.
So does this mean we can expect other businesses to suffer in the same way?
In truth, many already are. Any business that is trading abroad and thus has to deal with the exchange rates that are in force is faced with a much weaker pound to do business with. So for example, a pound would have got you two dollars less than a year ago. But during January that exchange rate fell to an alarming low of just 1.3630. That represents a significant difference if you are doing business abroad and it is one of the main reasons why Rolls Royce (among other companies) has gone into a deficit in this past year.
The real question though is how long this situation could last for. Rolls Royce seemed quite optimistic over its future, thankfully. While the situation it finds itself in is not ideal, it is strong enough and has enough to look forward to in the way of orders to be able to keep going. Other companies who aren't as lucky may find that the weakening exchange rate the pound has with other currencies is one of the main reasons why they will not recover from this current downturn.
In the end all we can do is keep an eye on the news and hope that as many companies as possible will be able to weather the storm. But as the financial news increasingly points to this downturn being a long and drawn out affair, time makes it harder for everyone to survive the poor exchange rates. The pound could yet account for the demise of more British businesses – and that is something many people are hoping will not happen.
Big businesses are often assumed to be the ones that are best placed to weather such a storm. But as we have seen already, that isn't always the case.