UK SMEs remain pessimistic about growth for the third straight quarter as continued uncertainty hampers international export confidence according to new research.
Continuing the downward trend for 2017, the number of SMEs trading internationally decreased slightly from 30 per cent in Q2 to 28 per cent in Q3. This figure is down by 20 per cent compared to the same period last year, translating in real terms to 1.1 million fewer SMEs trading internationally in 2017.
The gloomy outlook continues into the year-end with 70 per cent of UK SMEs expecting international trade to decline or remain stagnant throughout Q4.
Despite expectations that a weaker sterling would boost international exports, SMEs appear increasingly reluctant to pursue overseas opportunities.
Despite the decrease in the number of SMEs operating overseas, average trading amounts have remained fairly constant increasing from £44,000 in Q2 to £45,000 in Q3. This represents a significant jump from the same period in 2016 when the average monthly value of international trade was £38,000.
Jeremy Cook, Chief Economist at WorldFirst, said: “In Q3 the percentage of SMEs trading internationally fell to the lowest level we’ve recorded in nearly two years, whilst average trade values rose. This suggests that those SMEs pulling back from international trade are at the smaller end of the spectrum.
“This will prove a double edged sword for small businesses who, by holding back on international trade, might be limiting their potential for growth and profitability, narrowing their consumer base and not taking advantage of opportunities that lie beyond the British Isles.”
In September 2017, the Bank of England intimated that it could move to raise interest rates for the first time in more than ten years. The following trading day saw the value of sterling rush higher and SMEs moved quickly to lock in stronger sterling exchange rates through hedging contracts.
On the 15th September, the day following Bank of England meeting minutes, there were 4.4 times more hedge trades placed than the Q3 daily average, and 4.0 times more hedge trades than the six-month average.
Cook added: “This shift in attitude and trading strategy among SMEs could have been prompted by a number of different factors: less certainty around profit margins and sales estimates, reluctance to commit funds to financial contracts or a broader withdrawal of appetite for reaching overseas markets. We believe the latter argument is the most likely.
“Our data suggests the government’s hopes of a post-Brexit international trade boom with markets far and wide is either misplaced or that current policy is insufficient to incentivise this behaviour.”
