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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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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