Pressure is mounting with just hours to go before the UK votes on whether to remain or leave the European Union. Corporate treasurers are increasing liquidity and preparing for FX volatility.

Until the start of this month, few took the prospect of Brexit seriously. But some recent opinion polls have shown the leave campaign to be marginally ahead. The final result could still go either way but corporate treasuries are now facing the very real possibility of FX volatility, whatever the results of tomorrow's referendum.

An article on Reuters last Friday noted that: “Treasury departments will also be working overtime because a vote for a Brexit would be expected to roil currency markets and have major consequences for trade, the economy and migration in Britain and elsewhere.”

Violent currency swings 24 June

Currency swings are the main worry for British exporters. Reuters journalists wrote: “For many export-orientated multinationals in the FTSE 100 index, violent currency swings on the morning of June 24 are the top concern.”

Of note is that directors from 51 FTSE 100 companies have signed a letter backing the UK's membership of the EU. 

And in an article on CFO.com, David M Katz outlines the negative impact a leave vote would have on US-based multinationals. He writes: “For the many companies who regard London as the chief access point for doing business in Europe, a “leave” vote would cost US-based companies money in currency swings, a shrinking market for their wares, and possible relocation costs.”

The article reiterates that Friday 24 June is set to be a shaky day for currency markets. “We’re forecasting that sterling could fall as much as 10 per cent against the US dollar on Friday if we do see a Brexit vote,” one chief economist told CFO.com. If Britain votes to remain, sterling could rise by 3-4 per cent on Friday, however.

With polls too close to call, corporate treasurers find themselves in the awkward position of having to prepare for both scenarios. Placing more cash on the balance sheet to increase liquidity is one of the main ways to decrease exposure to the bumpy FX ride ahead.

Unprecedented consensus among economists

But beyond Friday's referendum results, greater risks loom for corporates operating in the UK. As reported in the Financial Times, leading economists agree almost unanimously that leaving the EU could be detrimental to the British economy. Predictions of how GDP would shrink if the leave vote prevails, by leading institutions such as LSE, HM Treasury, the OECD, CBI/PwC and Oxford Economics, range from a decrease of between 2.8 and 7.8 per cent, compared to a remain scenario.

Chris Giles writes in FT.com: “Rarely has there been such a consensus among economists, as there is on the damage that Brexit would wreak on the British economy. The warning may turn out to be wrong — but it is difficult to ignore.”