European turmoil hits UK SME confidence

London - 23 October 2012

  • Confidence in UK economic climate falls to second-lowest levels on record
  • SMEs are turning to personal savings and credit cards to finance business
  • Austerity measures starting to bite

The confidence of Britain’s small and medium sized importers and exporters has fallen to near record lows, according to the latest data from the Western Union Business Solutions International Trade Monitor (ITM), produced by TNS research.

In the period July to September 2012, only 46 per cent of British SMEs were confident in the current UK economic climate, down from 51 per cent in the previous quarter.

The fall in SME confidence is principally attributed to Eurozone instability over the summer months, which is still a major concern for 61 per cent of the surveyed importers and exporters. The largest concern of SMEs impacted by the debt crisis is the ability to convert cash reserves back from euros (50%); a further indication of declining confidence in Europe.

Government cutbacks continue to impact SMEs with 48 per cent of those surveyed believing that austerity measures should be scaled back in response to the UK entering a double-dip recession. A significant proportion (25%), however, believes they should remain the same, demonstrating that the impact of the recession on SMEs is not a one-size-fits-all story.

Europe remains British SMEs’ largest overseas trade partner, with 68 per cent of those surveyed indicating they bought goods from suppliers on the continent, down from 78 per cent in the previous quarter. On the export side, 76 per cent indicated their overseas customers were in Europe, which was flat on last quarter.

Concerns about the European economy, however, remain. 47 per cent said their business has been directly impacted by the situation in Europe whilst a further 18 per cent believe it will have an adverse impact on their business in the future.

Gareth Heald, UK Finance Director, at Western Union Business Solutions, says: “Eurozone instability is still posing a real and present challenge to struggling SMEs.

“Confidence has fallen to near-record lows and this is unlikely to change while the UK remains in recession. The constant stream of negative headlines from Europe and the recent IMF downgrade of the UK economy seem to have eaten into what little positivity was out there.”

Credit woes

Access to credit continued to add to SME worries; the ITM revealed that credit availability is a top concern for almost a third (30%) of SMEs.

Perhaps most concerning is the fact that more than one fifth (21%) are turning away from banks and considering alternative sources of finance. Of these, the top three sources of funding being considered are asset-based finance (44%), factoring account receivables (31%) and personal savings (26%).

Moreover, 20 per cent of all SMEs in Britain who are looking outside banks for financing have considered using credit cards – giving it the number four slot – while one in ten have actually done so.

Significantly, 60 per cent of UK SMEs said that they were aware of the Government’s National Loan Guarantee Scheme when asked in September 2012. Although an improvement from the 40 per cent who were aware of Project Merlin at the beginning of the year, only 13 per cent believe the new Scheme will actually help their ability to obtain credit.

Heald continues: “We have now seen confidence in credit availability hit an all-time low two quarters in a row, indicating that something is not working. This lack of confidence hurts SMEs as global market worries damage their appetite to leverage growth through borrowing, crippling supply chains as a result.

“The fact that businesses are increasingly turning away from banks and dipping into their personal savings – and credit cards – is a real worry.”

Export led recovery

SMEs continue to be cautious towards hopes of an export-led recovery, with 30 per cent believing the UK’s way out of recession will be through exports. Of those, however, 77 per cent believe it will be fuelled by trade with emerging markets.

Of SMEs who currently trade with emerging markets 37 per cent expect to increase their trade volumes. Encouragingly, a quarter of those who do not currently trade with emerging markets plan to expand their business to include them in the next 6-12 months.

Heald concludes: “While SME’s views on an export-led recovery are mixed, there are green-shoots of positivity with SMEs planning to increase trade with emerging markets. For many, it has become a necessity as the Eurozone continues to contract; but it also suggests SMEs are not sitting on their hands waiting for things to improve, they are creating their own markets.”

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development