UK SMEs Still Wary on Economy Despite Rising Confidence

The UK’s small and medium-sized enterprises (SMEs) involved in international trade are a little more upbeat on economic prospects, but retain a number of major business concerns according to the Western Union Company (WU).

The payment services group’s quarterly survey of over 660 UK SMEs engaged in exporting and importing found that in the quarter April to June 2013, 56% of SME business leaders expressed confidence in the current UK economic climate, up slightly from 54% in Q113.

Twenty per cent of SMEs, however, believed that the UK economy has improved in the last six months, up from 9% the previous quarter. Of these, 83% believe that this improvement is sustainable, despite citing macro-economic concerns.

Furthermore, 86% of SMEs believe that the UK’s general business environment will either improve or at least stay the same in the near future, which is indicative of the optimism that has been felt by larger businesses in recent weeks.

While domestic conditions may be improving for British SMEs, the WU research found that the global economy remains a top concern for 76% of businesses that trade with overseas buyers and suppliers.

The group’s International Trade Monitor (ITM) also revealed that British importers and exporters are concerned by cheaper competitors (63%) and currency volatility (59%). In the first half of 2013, sterling has fluctuated against the dollar and euro by over 9% and 7% respectively.

“Our research shows that SMEs, whilst welcoming improving economic conditions, are proving slower in embracing the large-scale optimism expressed by bigger businesses in recent weeks,” said

Jonathan Rees, UK regional divisional director, Western Union Business Solutions

“It is clear that we are still a long way from a full recovery; small business owners understand that more time is needed after six spluttering years of economic turmoil.

“Whilst good weather and sporting success have had an impact on consumer confidence, businesses are by no means out of the woods yet. SMEs will be wise to do what they can to mitigate against the increased volatility in the currency markets.

“The UK’s economic recovery is still fragile. Businesses cannot afford to get too complacent.”

Although 75% of SMEs saying that the majority of their export market lies in Europe, the research found that eurozone instability is an ongoing concern for the UK’s SME importers and exporters, with only 13% expecting conditions in the eurozone to improve by the end of the year.

Thirty-one per cent said that the eurozone crisis will have an adverse impact on their business in the future. The impact of Europe’s continuing economic challenges is reinforced by the fact that British SMEs are importing more from North American suppliers – 30% of businesses said that the majority of their overseas suppliers came from the region, up from 23% the previous quarter.

“UK SMEs are reacting to the continuing market conditions plaguing the Continent and are seeing more opportunities from North American buyers,” said Rees. “This is not surprising, particularly with the uncertainty in the Eurozone economy and unprecedented unemployment rates of over 26% in Spain and Greece.

“Recent market fluctuations are also affecting both importers and exporters with sterling moving nearly 5% against the US dollar in the second quarter. This volatility looks set to continue and it is crucial that British SMEs take steps now to protect their cash flow in what looks to be a turbulent second half of the year.”

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