Strength of the pound impacting UK exports

The UK’s SMEs are turning to each other to fuel the economic recovery, placing a focus on domestic trade, according to a new report.


The latest International Trade Monitor from Western Union Business Solutions has revealed that trading within the UK is up, while international exporting has fallen in the last quarter.


However, 40% of SMEs did expect European trade to recover in the next 12 months despite overall exports falling significantly in the final quarter of last year.


One issue to contend with is highly volatile currencies with regards to the state of the global economy, the overriding reason for a drop in exports.


If costs are deemed to be too risky, SMEs will choose alternative options in order to safeguard their futures.


When only small amounts of funding are available for many companies to enter foreign markets, the threats closer to home (such as the financial future of a company) takes precedence.


Given the economic conditions experienced since the financial crisis, it is perhaps not too surprising that many SMEs are still wary of potential company administration.


The strength of the pound


The pound has grown in value by 8% since 2008 and the Bank of England has previously voiced concerns over its strength harming potential exports.


Importing from Europe has also dropped though, a sign that improving economic conditions are beginning to filter down to all aspects of UK businesses, rather than just larger corporations.


However, caution should still be applied as companies could easily return to previous habits and could end up relying too much on local trade.


Not only does this mean they could miss out on potential high growth markets, but they could also face reduced custom in the long term.


For instance, only 9% of SMEs have customers in China, down 6% on a year ago, while only 6% sell to India – a drop from 15% last year.


It was a similar situation for South American markets too, so there are fears that the current high value of the sterling could derail the recovery.


By Phil Smith


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