British SMEs put faith in domestic-led recovery as fall in exports remains

Western Union Business Solutions has released the latest findings of the Western Union Business Solutions International Trade Monitor (ITM), the quarterly economic confidence survey of over 650 UK small and medium-sized enterprises (SMEs) engaged in international trade.

The report found that British SMEs are witnessing a domestic-led recovery, with export activity outside of Europe failing to recover from the decline seen in the second half of 2013. This decline was particularly pronounced in the final quarter of the year, when SME exports fell significantly and unexpectedly to all major markets. Export levels have remained subdued in the first quarter of 2014.

Despite the improved balance of trade with Europe, UK SMEs continue to feel the effects of a sustained period of pound appreciation against major currencies. Sterling has appreciated by eight percent since Governor Carney came into office, and the Bank of England continues to voice concerns over the strength of the pound potentially harming exports.

Christina Hamilton, UK Managing Director of Western Union Business Solutions, says that whilst improving domestic and European demand is welcome, there is a danger that the economic recovery will remain unbalanced: “The risk is that businesses will return to old habits and rely too much on local customers at the expense of exporting to high-growth markets.

“This research confirms the concerns of the Bank of England over sterling appreciation. UK companies have been forced to adapt to a constantly changing economic landscape, with a strong pound fuelling pressure on exports. Not only does sterling strength hurt the international competitiveness of UK SMEs, but continued pound appreciation also has the potential to derail hopes of a more export-led recovery.”

Despite the high level of concern about currency volatility, nearly half (45%) of SMEs engaged in cross-border trade do not use any risk management solutions to help protect against foreign exchange risk.

Christina continued: “67 percent of SMEs believe that the Eurozone crisis is not yet over and a further 13 percent say that the worst is yet to come. This just reinforces the need for a balanced and sustainable export-led recovery to fuel the British economy and ensure we move firmly beyond the economic downtown of the last six years.”