International trade takes a tumble for UK SMEs

international trade

In other signs of businesses halting international trade, two in three SMEs said they did not make a foreign currency transaction in Q1 2017, rising significantly from 28 per cent 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 per cent 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 are worried about rises in inflation negatively impacting their business and the same proportion 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 of SMEs planning to export in the next quarter, compared to a third 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 of SMEs are concerned that the resulting impact on currency rates will negatively affect their business – more than a tenth are very concerned. Additionally, a quarter worry that it will make it more difficult for their business to manage its currency risks – 9 per cent are very concerned.

Risk of further shocks as SMEs fail to protect themselves

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

The data also shows that SMEs are doing less to protect themselves from currency volatility. The popularity of currency hedging fell by 9 per cent 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 per cent Q-o-Q and 17 per cent 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.”

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