Smart money is on gradual shift out of sterling

Arguments that Britain should stay out of the single European currency area look like taking on something of a King Canute dimension. While many companies may dislike the idea, it is possible that they will become drawn into the euro currency area, because their European customers will be operating in euros. British suppliers asked by […]

Arguments that Britain should stay out of the single European currency area look like taking on something of a King Canute dimension. While many companies may dislike the idea, it is possible that they will become drawn into the euro currency area, because their European customers will be operating in euros.

British suppliers asked by pan-European customers to quote in euros may decide to comply if it helps them win business. If they in turn ask their suppliers to quote in euros too, use of the currency will creep down the supply chain.

The minnows at the end of the supply chain will probably lack the clout to impose deals in the single currency on whomever they please, being left with fistfuls of euros to cash in at the bank. The smaller players could face the currency risks from movements of the pound against the euro, and will also pay the transaction costs. To get around these problems, they could find themselves calling for wider use of the euro in high street shops.

This situation need not of course force UK adoption of the single currency. British companies involved in aerospace have quoted in US dollars for years. But the euro looks set to become much more widespread in British business and commerce than many people imagine.

The reality is that the euro currency area is no longer a geographical concept. Whether or not the UK adopts the currency, the euro currency zone will extend into this country. And many small engineering companies in Britain will need to learn how to act like exporters – even though they could be selling to a firm just a few miles away.