finance
monthly
Personal Finance. Money. Investing.
Contribute
Newsletter
Corporate

UK businesses optimistic about international trade plans – and view trade as a catalyst for growth, says new report from American Express.

The UK remains a uniquely connected major economy, and the future looks bright for the country’s trade activity; 39% of UK businesses presently trading internationally plan to increase their volume of trade over the next 12 months, and almost half (44%) expect their revenue from trade to increase within this period.

American Express commissioned the Centre for Economics and Business Research (Cebr) in October this year to undertake the Fresh Frontiers study to understand more about the dynamics of international trade opportunities across six major trading markets.

Based on economic modelling, the report reveals that the USA is the top untapped trading partner for the UK. In addition, continental European markets also feature strongly in terms of untapped trade potential, with Luxembourg, Denmark, France, Finland and Austria all ranking highly. This suggests the UK businesses should look to continental Europe and the US for future trade growth.

As part of the Fresh Frontiers study, American Express also separately surveyed businesses in each country about their international trade outlook. The majority (77%)  believe that opportunities for international trade are increasing and half are looking to trade with new countries over the next 12 months.

Reassuringly, the research also shows that the present economic turbulence isn’t deterring UK businesses when it comes to their trade ambitions: The vast majority (80%) of UK businesses trading internationally are confident in their global trade strategies, with bigger businesses (with 250+ employees) 11% more likely to be confident than SMEs. However, it seems that they are taking a cautious approach to their trade plans, with almost half (49%) describing their approach to international trade as ‘measured’ and 21% saying they are ‘risk averse’.

Despite the opportunities offered by international trade, businesses admit that they face significant obstacles when looking to trade. 75% of UK businesses surveyed believe that international trade is becoming increasingly complex, citing exchange rate volatility and economic changes as the biggest challenges to both their current and future international trade activity. UK businesses also revealed that making and receiving payments abroad was overly problematic (71%). However, less than half (42%) currently use FX forward contracts and only 28% use FX Options, despite the vast majority of those that do deeming them effective (87%).

Jose Carvalho, Senior Vice President at American Express Global Commercial Payments, comments: “It’s very positive to see UK businesses looking to international trade as a way to grow and undeterred by either geography or logistics.  As well as looking to new countries to trade with, businesses are actively seeking solutions such as FX forward contracts to overcome perceived barriers.  Technology has been a great catalyst in enabling this to happen.”

Cristian Niculescu-Marcu, Managing Economist at CEBR, says: “Taking into account key trade drivers, such as economic performance, regional trade agreements, low levels of corruption and institutions, the Fresh Frontiers analysis shows significant untapped trade potential for UK businesses both in the USA and closer to home.”

With 91% of UK businesses agreeing that digital technology makes it easier to trade internationally and 73% agreeing that they expect to see business growth through international rather than domestic trade over the next year, there has perhaps never been a better time to assess new trade potential around the globe.

(Source: American Express)

EUAnnual consumer price inflation across the Eurozone climbed up to zero in April 2015 after four months of consecutive declines, Eurostat has announced. However, there is still much to do. Even at zero, the rate of inflation remains well below the European Central Bank's (ECB) target of at or below 2%, with the weak performance owing largely to declining energy prices. Meanwhile, the unemployment rate stayed steady at 11.3% in March.

According to the Centre for Economics and Business Research (Cebr), this should give the ECB a chance to catch its breath after a bumpy start to the year. Its quantitative easing programme (QE), launched to address the currency union's poor economic performance, is showing results. Much has happened through the currency channel, with the euro depreciating sharply against major currencies since the policy was announced. Consumers are also starting to feel the benefits: confidence across the Eurozone is up and retail sales are growing at their fastest pace since 2005. This has caused some to think that the ECB may terminate QE earlier than the currently suggested timeframe of end 2016.

The last two years suggest that trying to gauge the economic climate a year ahead can be tricky. Cebr remains on the cautious side. “The Eurozone job is definitely not done yet, let alone well done. Germany is carrying on a decent path to recovery but the union's second-largest economy, France, is still far from finding its way there. Much-needed labour market reforms have been absent from the picture, and, with the presidential election season approaching fast, appetite for pressing on with unpopular measures is bound to decline,” Cebr said in a statement.

The independent economics consultancy continued: “Conditions seem brighter in the South, especially in Iberia. Looking ahead to the rest of the year, the Eurozone's southern periphery will most certainly enjoy an uptick in the summer as tourist season kicks in. Receipts from tourism should be especially strong this season given the weakness of the euro and geopolitical tensions in regional competitors such as North Africa. But the fundamentals remain weak.”

Greece, while closer to a deal now after a new reforms package emerged from the new negotiating team in Athens earlier this week, is still at a very fragile state. Its banking sector is heavily dependent on the ECB's willingness to continue providing funds through the Emergency Liquidity Assistance mechanism. In 2015 thus far, around €30 billion of deposits have been withdrawn from Greece's banks. And non-performing loans are at 35%, much higher than 2012 levels of 25%. The banks remain systemically sound: capital adequacy ratios at above 12% are exceptionally high. But any “accident” in the negotiation process would quickly make banks lose deposits. It will then be up to the ECB to decide the country's fate.

stack of poundsThe UK’s Office for National Statistics (ONS) today announced that UK consumer price inflation has hit its lowest point since the early 1960's. After a 0.3% reading in January, annual inflation fell further to 0.0% in February.

According to the Centre for Economics and Business Research (Cebr), the greatest contributors to the inflationary slowdown were falling motor fuels and food prices. Taken together food and motor fuel prices have reduced the CPI rate by some 0.9 percentage points in the year to February.

Cebr said it continues to anticipate a brief bout of deflation in the coming months with inflation at -0.3% and -0.1% in March and April respectively. Despite a pickup towards the end of the year, for 2015 as a whole Cebr expects inflation to stand at just 0.4%.

Helmii

Adam Chester, Head of Economic Research & Market Strategy at Lloyds Bank Commercial Banking, agrees that falling fuel and food prices are having an impact. He said: “The latest drop in inflation to 0.0% leaves the UK on the cusp of deflation for the first time in nearly 50 years. Notably, the drop has not been driven by weakness in the economy but by aggressive supermarket discounting, and the feed-through from lower oil prices to forecourt fuel prices. With sterling’s exchange rate pressing down on import costs and retail energy prices set to fall further, inflation looks set to dip briefly into negative territory over the coming months.

“The drop in inflation is good news for consumers and businesses. Falling food and energy prices are easing the pressure on household finances, whilst businesses will benefit from lower fuel prices and strengthen their ability to invest for future growth. For householders and businesses with debt low inflation strengthens the case for the Bank of England to keep interest rates at a record low.”

According to Cebr, the benign inflationary environment is almost certainly going to prolong the Bank of England’s (BoE) period of inaction. Given the lack of inflation and the pound’s sharp rise against the Euro, the pressure on the BoE to maintain low interest rates for longer has intensified. Cebr expects the first rate rise in February 2016.

 

The Bank of England’s Monetary Policy Committee (MPC) voted to keep the base interest rate and the stock of assets purchased under the quantitative easing programme unchanged in February at 0.5% and £375 billion respectively.

The headline rate of inflation, as measured by the Consumer Price Index (CPI), fell to just 0.5% in December and, according to figures from the British Retail Consortium (BRC), food prices plunged at the quickest rate in eight years in January as the supermarket price war continued. This, combined with further falls in the price of vehicle fuels, is likely to move consumer price inflation to a new record low in January, edging the UK economy closer to deflation, according to the UK’s Centre for Economics and Business Research (Cebr), which expects a brief bout of negative inflation to begin in March.

Fortunately for the UK economy it looks unlikely, at present, that weak or negative inflation will become entrenched, said Cebr.

Lower oil prices should act to stimulate growth in the UK economy in 2015. Weak inflation and a pickup in wage growth will support a substantial and sustained increase in real wages over the course of this year. This will act to bolster household spending power and boost consumption. This demand should place upward pressure on prices, helping to move the headline rate of inflation back towards the Bank’s 2% target in 2016 as the short-term effects of lower oil prices pass through. However, with the European Central Bank further easing monetary policy by announcing its own quantitative easing programme in January, an early rate rise risks importing further disinflationary pressure to the UK as the value of the pound strengthens. In such a situation the UK’s brief bout of deflation could become a rather more drawn out process. Indeed a number of other central banks have responded by easing monetary policy themselves to combat such pressures. As such it looks increasingly unlikely the Bank of England will raise the base rate in 2015,” the economic forecaster said.

exploresurvey.com/bifs-us-survey

Cebr now expects the MPC to start raising interest rates from February 2016

PoundNoteXCUThe UK economy edged closer to deflation as annual growth of the consumer price index (CPI) fell from 1% in November to just 0.5% in December, according to data released by the Office for National Statistics yesterday. This is the joint lowest rate of CPI inflation on record, equal with 0.5% seen in May 2000.

“The main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the calculation and the continuing drop in motor fuel prices (reflecting the collapse in global oil prices). Falling food prices – a result of intense competition among UK supermarkets – have also played a major role in the low inflation figures,” the Centre for Economics and Business Research (Cebr) said in a statement.

According to Cebr, disinflationary pressures look set to continue in the first half of 2015. Retailers are still in a phase of intense competition, petrol prices should fall back further in the first half of the year and utility companies are likely to cut prices given developments in wholesale markets. Already, E.ON has announced a 3.5% cut to its standard gas prices, and other utility providers will almost certainly follow suit. Cebr said that, with prices for a number of essentials lower now than a year ago, the prospect of inflation on the CPI measure dipping into negative territory - i.e. deflation - is now very real.

However, Cebr claims that a bout of ‘good deflation’ could be just what is needed by the UK economy. Cebr says that, when the main driver of deflation is falling essentials prices – such as food and petrol - this could result in freeing up household spending power for more discretionary goods.

“While even this kind of deflation may have negative consequences if persistent – falling prices mean that the inflation-adjusted value of household and government debt rises – a brief bout should prove virtuous. With weak economic growth in the Eurozone and no hope of an export-led recovery anytime soon, the boost to household spending power from falling food, transport and utility prices could be the shot in the arm that the UK economy needs to maintain momentum in 2015 – especially when combined with the pick-up in earnings growth which Cebr expects to emerge this year,” Cebr stated.

Europe - shutterstoc#D909E6The Eurozone has slipped into deflation for the first time since October 2009 as the annual change in the Consumer Price Index fell below zero to -0.2% in December, Eurostat reported on January 7, 2015. The unemployment rate across the currency area was reported to have remained steady at 11.5%.

Beneath the headlines, the data continues to mask the mixed realities faced by the currency union's members, especially those to the south of the Frankfurt-based European Central Bank (ECB) who is responsible for maintaining price stability across the bloc, according to Danae Kyriakopoulou, Economist with the Centre for Economics and Business Research (Cebr).

Greece and Spain have already been in deflation for months now (in the case of Greece for almost two years) and have been suffering from unemployment rates more than twice as high as the Eurozone average since mid-2011. In Germany, by contrast, unemployment has been on a downward trend and is now at a modest 6.5%, while annual inflation is still positive at 0.2%.

“This picture may seem puzzling to the eyes of the German taxpayers, who as the largest creditor to the European institutions are becoming increasingly fatigued by the Greek bailout saga. With so many funds sent to Greece and managed under the direction of the combined economic expertise of the troika lenders (ECB, EU and IMF), why are economic indicators in Greece still doing so badly five years on?” asked Ms Kyriakopoulou.

Recent research by the Athens-based economic analysts Macropolis shows that out of the total €226.7 billion that has been supplied to Greece since May 2010 by the troika, only 11% was used to sustain the needs of the Greek state, such as maintaining the provision of basic public goods and services. More than half of the funds have gone back to the creditors in the form of repaying the debt and the interest associated with it, the think-tank reports.

“As recovery remains elusive not only in Greece, but in many other debt-ridden periphery economies and even the currency bloc as a whole, the key question now is what kind of fiscal and monetary policies will be designed in response? Due to their dire economic situation, most periphery countries have little fiscal room to boost their economies through spending, and Germany has pledged to deliver a balanced budget this year,” said Ms Kyriakopoulou.

“The ECB retains a potential silver bullet in the form of quantitative easing (QE) still up its sleeve and ready to be launched. The central bank has a central target for consumer price inflation of 2%. In this light, [Eurostat’s report] undoubtedly raises the pressure on the ECB to act. On the other hand (Liposuction in Dubai), it is worth keeping in mind that the decline in prices was chiefly driven by a 6.3% year-on-year fall in energy prices. This is a ‘good type’ of deflation as it directly translates into a boost for consumers' pockets.

“Given that the ECB has for so long resisted QE even while some countries were in ‘bad’ deflation, there may be little hope in expecting action now that deflation has spread to the rest of the bloc due to factors beyond its control. Overall, Cebr would welcome a move to QE but maintains its view that it would be insufficient to kick-start the recovery. A softer take on austerity and the setting of both fiscal and monetary policies in expansionary mode are imperative to avoid another crisis,” Ms Kyriakopoulou concluded.

About Finance Monthly

Universal Media logo
Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
© 2024 Finance Monthly - All Rights Reserved.
News Illustration

Get our free monthly FM email

Subscribe to Finance Monthly and Get the Latest Finance News, Opinion and Insight Direct to you every month.
chevron-right-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram