UK SMEs expect overseas trade to fall this year

By:
Duncan Kerr
Published on:

Almost a third of UK small and medium-sized enterprises expect to see the volume of international trade they do drop throughout 2014, dealing a blow to the UK government’s ambitions to boost the country’s overseas sales.

In a report by Afex, a global payment and risk management consultancy, it says 29% of UK SMEs included in its global survey expected international trade to fall, partly as a knock-on effect of currency volatility.

Since the summer of 2012, sterling has fluctuated as much as 12% against the euro, while it has appreciated by roughly 13.5% against the dollar and Chinese yuan in the past six months alone, according to Afex.

Some 59% of UK-based SMEs expect this volatility to continue throughout 2014, with a further 25% expecting increased volatility. Only 16% expected FX rates to stabilize during 2014, states Afex.

UK SMEs’ pessimism on overseas sales this year will come as a blow to UK chancellor George Osborne, who outlined plans in the budget to boost the country’s exports, and particularly from SMEs.

Osborne has set an ambitious target of doubling the UK’s annual exports to £1 trillion by 2020, but has conceded the UK is playing catch-up to countries such as France and Germany, which have far larger trade programmes with fast-growing emerging economies.

Afex’s currency risk outlook survey questioned more than 450 SMEs globally on their attitude to foreign-exchange risk, methods of managing it and their appetite for global trade generally.

A third of businesses (32%) say they saw currency volatility as their primary challenge in doing business overseas and roughly the same number (28%) say they would increase measures to hedge against adverse currency movements in 2014.

Among those UK SMEs looking to increase international trade, western Europe is most popular, with 45% of UK firms looking to expand their overseas trade in that region. The US is the second most-popular trading partner and China is third.

Some 60% of UK SMEs surveyed say they actively use financial products to mitigate risks, with more than half of those questioned saying they will use forward contracts in 2014. These contracts lock in a price for a currency exchange up to 12 months in advance, providing some form of volatility protection.

Other approaches, such as currency swaps, options and natural hedging remain relatively unused by SMEs, states Afex.

“Large multinationals have been managing currency risk for many years but we’re now seeing smaller firms far better educated as to how they can protect profits made through international trade,” says Guido Schulz, Afex’s global head of strategic management.

“The tools and platforms now exist so that even firms without sophisticated financial teams can understand their exposure and manage risk accordingly.”