City squeezed by stronger pound

Michael Bow
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BRITISH investors will lose out on billions of pounds due to soaring sterling, raising fears the currency will undermine the competitiveness of City-based multinationals and hammer shareholders.

Scores of UK blue chip companies who report their profits in dollars are set to deliver smaller sterling payouts to investors this year after the pound climbed to a five-year high against the dollar, wiping £3.5bn off this year’s estimated windfall, according to new statistics out today.

Oil, mining and financial stocks will be hardest hit by the strong pound, which has risen 12 per cent against the dollar in the last year thanks to the sunnier outlook for UK jobs and economic growth.

Figures from Capita Asset Services (CAS) show around two-fifths of dividends paid out to fund managers and savers is denominated in dollars, heightening the impact the runaway currency is having on returns.

“It is hitting investors hard. It’s very unusual to see so many of our biggest companies struggling to increase what they return to investors,” CAS’s Justin Cooper said.

Income paid out to investors increased at a sluggish pace last quarter, with underlying dividends rising just 3.3 per cent to £14.3bn thanks to a £400m fall in oil and mining dividends versus a year ago.

The currency upheaval comes as more evidence today shows a resurgence in the number of profit warnings issued by listed companies due to the rising pound.

A total of 14 FTSE 100 firms rushed out a profit warning in the first quarter this year – more than at the height of the financial crisis, according to EY.

The strength of sterling has also led to dramatic revisions to FTSE 100 earnings forecasts by company analysts. A Deutsche Bank study suggests a 7.2 per cent cut in forecasts since New Year’s day – the biggest earnings downgrade in Europe. FTSE 100 firms have already started to flag up the growing threat of the strong pound to revenue growth, with WPP and Burberry both citing the currency as a strain on earnings last quarter.

Economist John Mills, who campaigns to devalue the pound due to its strength, called on the government to step in. “The UK is suffering too much, especially in the manufacturing industry,” he said.

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