Post by : Saif Rahman

A recent study has illustrated that a significant number of businesses in the UK encountered financial setbacks in 2025 due to unpredictable fluctuations in the British pound's value. The report from MillTech, a prominent FX and cash management provider, indicates that nearly half of the companies surveyed recognize an urgent need for enhanced currency protection.

In October, more than 250 chief financial officers and treasurers participated in the survey. Among the respondents, 48% admitted to suffering losses as a direct result of the pound's volatility, underscoring a pressing concern voiced by business leaders regarding the currency's instability affecting financial strategies.

This year, currency markets have experienced heightened activity, largely attributed to growing geopolitical tensions. The unpredictability of global trade has surged, particularly influenced by U.S. President Donald Trump’s continuing focus on his "America First" policy, leading to increased unpredictability in major currencies.

To combat these challenges, businesses frequently resort to a financial strategy known as hedging. Hedging offers a safeguard against potential losses resulting from rapid fluctuations in currency values. The findings reveal a consistent rise in hedging practices among UK enterprises over the past three years. In 2025, 78% of companies adopted hedging methods, an increase from 76% last year and 70% the previous year. Notably, 68% of companies not currently employing hedging are contemplating its adoption due to the volatile market.

MillTech's CEO, Eric Huttman, provided a notable analogy, stating that many CFOs perceive currency risk as akin to a slow-dripping tap, something initially ignorable. However, this year, he remarked, that drip has escalated to a "full-on leak," compelling businesses to act swiftly to mitigate deeper financial repercussions.

This year has proven turbulent for the British pound, which reached a four-year peak of over $1.37 in July, aided by a weaker U.S. dollar but subsequently plunged as worries regarding the UK economy intensified. According to LSEG data, 2025 is set to be one of the pound’s most tumultuous years since 2022.

The report also outlines significant statistics regarding the firms’ reactions: the average hedge ratio—defining the percentage of currency exposure protected—has soared to 53%, up from 45% last year. Although the typical duration of hedges remains around 5.5 months, it notably surpasses the 4-month average recorded in 2023.

This trend suggests that UK enterprises are not only increasingly engaging in hedging but are also opting for extended durations of hedging to fortify their protection. Facing political volatility, trade tensions, and fluctuating currency trends, many firms deem this strategic approach essential for their survival.

The insights reflect that the pound’s volatility now represents more than a mere inconvenience; it has evolved into a tangible financial hazard that businesses cannot overlook. As global pressures persist, the role of hedging is likely to become even more crucial in how UK firms navigate the international market.

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