Credit rating downgrading will hurt smaller businesses, says expert

27th February 2013

Moody's decision to downgrade the UK's coveted AAA credit rating will have an unwelcome impact on the country's small business community.

That is the message from Harry Geller, Senior FX Manager at The Currency Cloud, who explained that the credit rating agency took the decision on account of rising government debt and the use of quantitative easing measures.

Mr Geller said that the move will manifest itself in higher import prices and, ultimately, rising inflation.

"While UK exports will become cheaper and more attractive, small and medium-sized businesses that export or import may suffer from the downgrade decision," he commented.

"Volatility of the pound will make the forecasting of cash flow difficult for British businesses.

"Smaller businesses should hedge their currency risk and book exposure on to forward contracts. By taking measures against currency risk, businesses will be able to budget more efficiently and protect themselves from adverse market conditions."

Despite this contention, Alan Pepper, the chief executive of Avanta, has called on the small business community and others to keep the credit rating decision in perspective.

He observed that the UK's rating remains the envy of much of the world and means that it is on a par with the likes of France and the US.

The credit rating is, according to Mr Pepper, unlikely to have a huge direct and immediate impact on small businesses.

It does, however, appear that the value of the pound will fall in the coming months, thereby causing more pain for Chancellor George Osborne.

Earlier this week, a study conducted by the Forum of Private Business said that the majority of small businesses in the UK are unimpressed with the changes made to the tax system by the current government.

What's more, as many as 28 per cent of business owners suggested that the fairness of the tax system has deteriorated under the current government, while a quarter of respondents said that the system had become more complex.

Posted by Jacob Williams

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