Tuesday, May 16, 2017

International Trade Takes a Tumble for UK SMEs

World First’s latest [Global Trade Barometer] shows a significant slowdown in international trading, as UK SMEs transfer 17% less on average per currency transaction in Q1 2017 versus Q4 2016 – a fall from £48,000 to just £39,000.

In other signs of businesses halting international trade, two in three (64%) SMEs said they did not make a foreign currency transaction in Q1 2017, rising significantly from 28% in Q4 2016.

% of SMEs not making a foreign currency transfer


Q1 2016 27%
Q2 2016 31%
Q3 2016 33%
Q4 2016 28%
Q1 2017 64%

The drop in SMEs’ confidence has been compounded by currency volatility, with 30% saying they felt the negative impact of exchange rate movements in the last quarter.  SMEs are also concerned about political and economic factors in the months ahead. One in five (22%) are worried about rises in inflation negatively impacting their business and the same proportion (22%) show concerns over a fall in consumer spending.

Top 5 business concerns shared by UK SMEs

Rise in inflation 22%
Fall in consumer spending 22%
Currency volatility 19%
Change in government policies 18%
Increase in business rates 16%

Jeremy Cook, Chief Economist at World First, comments:
“The fall in trading by UK SMEs clearly shows us that SMEs are doing less trade abroad. Higher costs of importing materials and squeezed margins are seeing businesses pull back from international trade. Whilst fewer transactions of less value might be less risky for businesses, it could have a negative impact for the UK economy going forward.”

SMEs plan for less international trade

The decline in international trading looks set to continue with only a quarter (25%) of SMEs planning to export in the next quarter, compared to a third (33%) who currently do so. Declines are expected across major regions and with major trading countries.

 Region % of SMEs currently exporting % of SMEs with plans to export
USA 16% 2%
Australia 6% 2%
China 5% 1%
India 7% 1%
South Korea 7% 1%
Japan 11% 2%
Nordics 11% 7%
Eastern Europe 10% 8%
Western Europe 24% 15%
Central Europe 12% 8%
North America (excluding USA) 10% 8%
South America 6% 4%
Africa & Middle East 9% 6%
South East Asia (excluding China and South Korea) 7% 4%
Rest of Asia (excluding India) 6% 4%

Brexit negotiations cause further headache for UK SMEs

With Article 50 triggered, over a third (35%) of SMEs are concerned that the resulting impact on currency rates will negatively affect their business – more than a tenth (12%) are very concerned.  Additionally, a quarter (26%) worry that it will make it more difficult for their business to manage its currency risks – 9% are very concerned.

Risk of further shocks as SMEs fail to protect themselves

Despite expectations of further volatility, three in five (59%) of UK SMEs have no plans to protect themselves against future currency volatility. This is despite 37% of SMEs saying that a further fall in sterling will negatively impact their business.

World First data also shows that SMEs are doing less to protect themselves from currency volatility.  The popularity of currency hedging fell by 9% in Q1 as less forward contracts were booked.

In particular, there was a significant decline in the appetite of UK SMEs for short term contracts (one month or less) with a 25% Q-o-Q and 17% Y-o-Y reduction in volume.

Jeremy Cook, Chief Economist at World First, comments: “The volatility of foreign exchange markets over the past twelve months, combined with the political and economic uncertainty has made the task of approaching foreign exchange markets with clarity and confidence even more difficult.

“Rather than address the issue of currency volatility, many SMEs seem to be burying their heads in the sand. The lack of forward planning amongst SMEs is leaving them susceptible to future shocks that could have a significant impact to their bottom line – we only need to look towards June’s UK general election as another potential flash point.”

May 16, 2017 at 01:33PM

from Dylan Jones