Confidence in UK Economic Outlook Dips Among SMEs

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

The survey of small to medium-sized enterprises (SMEs) found that in Q312, only 46% were confident in the current UK economic climate, down from 51% in Q2. The fall in SME confidence is principally attributed to eurozone instability over the summer months, which is still a major concern for 61% 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% of those surveyed believing that austerity measures should be scaled back in response to the UK entering a double-dip recession. However 25% believe they should remain the same, demonstrating that the impact of the recession on SMEs is not a one-size-fits-all story. 

Europe remains UK SMEs’ largest overseas trade partner, with 68% of those surveyed indicating that they bought goods from suppliers on the continent in Q3, down from 78% in Q2. On the export side, 76% indicated their overseas customers were in Europe, which was flat on last quarter.

Concerns about the European economy remain, with 47% reporting that their business has been directly impacted by the situation in Europe, while a further 18% believe it will have an adverse impact on their business in the future.

“Eurozone instability is still posing a real and present challenge to struggling SMEs,” said Gareth Heald, UK finance director, Western Union Business Solutions. “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.”

Access to credit continued to add to SME worries, with the ITM finding that credit availability is a top concern for almost a third (30%) of SMEs. More than one in five (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 accounts receivable (A/R) (31%) and personal savings (26%). Moreover, 20% of all UK SMEs looking outside banks for financing have considered using credit cards, giving it the number four slot, while one in 10 have actually done so.

Sixty percent of UK SMEs said that they were aware of the government’s national loan guarantee scheme (NLGS) when asked in September 2012. Although an improvement from the 40% of firms that were aware of Project Merlin at the beginning of the year, only 13% believe the new scheme will actually help their ability to obtain credit.

“We have now seen confidence in credit availability hit an all-time low two quarters in a row, indicating that something is not working,” said Heald. “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.”

SMEs continue to be cautious towards hopes of an export-led recovery, with 30% believing the UK’s way out of recession will be through exports.  Of those, however, 77% believe it will be fuelled by trade with emerging markets. Of SMEs who currently trade with emerging markets, 37% expect to increase their trade volumes while one in four of those which do not currently trade with emerging markets plan to expand their business to include them in the next six to 12 months.

“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,” said Heald. “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.”

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