Insurance · 15 May 2017

High costs and low consumer spending hit export confidence for small firms

Currency volatility
High import costs and low demand are the biggest concerns for small exporters in Britain

Only a third of small UK business owners made a foreign currency transaction in the first quarter of 2017, as new research revealed which factors were hitting export confidence and stopping founders from selling overseas.

In a new global trade study, by payment platform WorldFirst, smaller exporters cited rising inflation and a decline in consumer spending as the top concerns for future international trading.

The findings for the first four months of 2017 provided a concerning contrast to the same period in 2016, when three-quarters of owners completed a foreign currency transaction.

The picture for the future suggested even greater caution from small exporters. Only a quarter of small business owners planned to export goods and services in the second quarter of 2017 – a sharp decline on the third currently exporting.

The findings suggested an end to a “honeymoon period” for small exporters that saw many capitalise on the initial devaluation of the pound to offer goods at a cheaper rate overseas.

According to Jeremy Cook, chief economist at World First, the figures “clearly” showed small firms were preparing to trade less 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,” Cook said in a statement.

After high import costs and slow sales, currency volatility was cited as having the greatest impact on export confidence. Some three in ten small company owners claimed exchange rate movements – affecting the pound’s value since the EU referendum in June 2016 – had negatively impacted their business in 2017.

“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,” Cook added.

Cook suggested many small exporters were guilty of “burying their heads in the sand” over addressing currency volatility.

He added: “The lack of forward planning amongst [small business owners] 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.”

A recent nationwide survey into the post-Brexit export confidence of founders revealed overwhelming concerns regarding the ease of overseas trading. Almost three-quarters of business leaders cited “barrier-free EU trade” as their greatest priority for the government’s Brexit negotiations.

Find out why ecommerce could be solution to low export confidence among small international traders

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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