Business Outlook 2018

BUSINESS OUTLOOK 2018

While the USD/GBP exchange rate averaged 1.29 during 2017, it reached an annual high of 1.35 in December and surpassed 1.40 in January 2018. Although a weaker dollar tends to have a positive impact on oil prices, there are downsides for the domestic industry. UK producers with a local cost base will find their revenues are worth less in sterling terms and supply chain companies with a propensity to export will be less internationally competitive as the pound strengthens, albeit many companies will hedge against currency fluctuations.

Figure 2: Exchange Rate

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1.7

1.6

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1.5

1.4

1.3

1.2

1.1

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Source: Bank of England

Despite short-term growth, the futures market has moved into backwardation, whereby contracts for future delivery of Brent are trading at a discount to the current spot price, as shown by Figure 3 opposite.

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