Extract A

UK advanced manufacturing sector turns to currency hedging

The Coventry-based robotics systems integrator, Vanguard Robotics, has significantly expanded its reliance on forward contracts to insulate its operations from foreign exchange market volatility. Throughout 2022, a persistent depreciation of sterling against major currencies, particularly the Japanese Yen, created severe headwinds for advanced manufacturing firms in the UK. Vanguard Robotics imports critical high-grade optical sensors and precision servomotors from specialist Japanese suppliers. "Since our primary components are invoiced in Japanese Yen, any sudden drop in the pound's value immediately inflates our production costs and threatens our operating margins," noted the procurement director. Forward exchange contracts have enabled the firm to lock in exchange rates up to 12 months in advance, stabilizing cash flows. However, facing a prolonged period of sterling weakness, approximately 35% of surveyed UK advanced engineering procurement managers reported they are actively investigating domestic UK suppliers to secure their supply chains.

Figure 1: Value of £1 in Japanese Yen (¥ per £), June 2022 – August 2023