Spring-time resurgence in confidence for UK SME importers and exporters

London - 28 March 2012

  • Two thirds of UK SMEs optimistic about current international trade conditions

  • Double-dip recession thought to be ‘unlikely’

  • Worries remain, including access to credit; 81% of SMEs see no improvement in availability

Small and medium sized enterprises (SMEs) are more confident about current UK economic and international trading conditions, according to the latest data from the Western Union Business Solutions International Trade Monitor (ITM), formerly known as the Travelex Confidence Index.

After a difficult winter that saw the UK economy shrink by 0.2 per cent [1], confidence levels are now at their highest for six months. Nearly two thirds (65%) of importers and exporters feel confident about current international trade conditions in the three months to March 2012 – an increase of nine per cent from the previous quarter, which was the lowest on record.

Confidence in the UK economy has also improved, with nearly half of SMEs surveyed (47%) feeling confident in the national economic climate compared to 40 per cent last quarter. Moreover, 58 per cent feel that British economic conditions have stabilised or improved over the last six months, an improvement of 11 per cent.

The International Trade Monitor also reveals that fears of a double-dip recession have subsided. In February 47% of the respondents felt a double-dip recession likely, down from a high of 70 per cent in December 2011. This sentiment reaffirms the Office for Budget Responsibility’s expectation that the British economy will “avoid a technical recession” this year, as mentioned in the Chancellor’s recent Budget speech [2].

Another encouraging finding is that 58 per cent of British SMEs who trade abroad think the international aspect of their business will grow in the next 6-12 months – a positive sign for the government in light of the Chancellor’s goal to more than double UK exports to £1 trillion by 2020.

Neil Graham, Managing Director, UK, for Western Union Business Solutions, comments on the improved confidence:

“The improved confidence amongst importers and exporters is a tentative step in the right direction.

“Business confidence in the UK economy has returned to levels last seen prior to the European sovereign debt crisis, which is indicative of British SME’s resilience in the face of a harsh economic winter.

“Significantly, only 35 per cent of SMEs now feel that the conditions in the UK are dampening their trading prospects abroad. This is a nine per cent drop from the previous quarter, and an important step towards an export-led recovery.”

Britain’s SME importers and exporters, however, still find they are faced with all-too-familiar obstacles that hinder their competitiveness internationally. Most businesses (81%) haven’t seen any change in the availability of credit from financial service providers over the past year, whilst a further eight per cent think availability has worsened. Furthermore, 18% of British SMEs are looking at alternative sources of funding, including asset-based financing and dipping into personal savings.

Neil Graham continues: “Despite the boost in confidence, British SMEs are still struggling. The global economic outlook remains uncertain which means liquidity continues to be a big problem. SMEs are grappling with cash flow, especially with receiving payments in time to cover their costs.

“This is deeply concerning as otherwise healthy businesses are at risk of going under. Cash flow, order loss and cheaper international competitors are bigger worries for SMEs than access to credit.

“We welcome the Chancellor’s £20bn National Loan Guarantee Scheme for SMEs but it cannot work in isolation; the scheme will not be enough by itself to address the issues our customers are facing. The fact that we are seeing a trend towards SMEs seeking alternative sources of funding demonstrates the deep need that exists.

“The move for Britain to have a 22% rate of corporation tax by 2014 is encouraging in terms of the UK’s international competitiveness. However, we will only succeed in meeting the Government’s target to boost annual exports to £1 trillion by engaging more closely with the needs of Britain’s small and medium-sized businesses – which include but go beyond access to credit.”

The International Trade Monitor is the only piece of research available that tracks the confidence and sentiment of Britain’s SME importers and exporters and has been running since March 2010 as the Travelex Confidence Index. The research is now conducted on behalf of Western Union Business Solutions, a business unit of the Western Union Company (NYSE:WU), which recently acquired Travelex Global Business Payments, a division of Travelex. The combined company is dedicated to helping UK businesses understand FX and manage their cross-border payments.

[1] Source: Office of National Statistics.

[2] Source: HM Treasury: Budget 2012. Page 15, “Economy Forecast” (1.21).

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