European debt crisis hits UK international trade

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1 JUNE 0 European debt crisis hits UK international trade Inflation threat and weak pound concern UK businesses trading internationally Seven in 0 exporters are concerned that inflation will affect their competitiveness overseas Almost two thirds of importers hit by weak UK economic conditions Confidence in future trading conditions slides on news from Greece saw a % decease in the number of UK businesses who are confident that international trade conditions will improve over the next months (: %, 0%). Record 0% fall in the number of businesses who believe in an export-led economic recovery (: %, : %), the lowest since the Index began. UK economic woes damaging business competitiveness 0% of exporters are concerned that further increases in inflation will negatively impact British competitiveness abroad and as a result adversely affect their business, up % since (%). reveals an increase of % in the number of importers whose international trade has been adversely affected by the UK economy (: %, : %). Weak UK economy sees concern over double-dip bubble to the surface Almost a third of UK businesses (%) feel that the UK economic situation has worsened over the last six months, up % since (%). % of businesses feel that a double dip recession is likely, up % since (%). David Sear, Global Managing Director at Travelex Global Business Payments says: The fall in trade confidence, evident from s index, has been largely impacted by rising UK inflation and the debt crisis we are witnessing in Europe; the UK s main trading partner. UK businesses are already finding it difficult to trade profitably with Europe, due to a continuous pressure on margins and bottom line, and are now anticipating further struggles. With the threat of default and collapse across the channel, it is no wonder that importers and exporters expectations over the next six to twelve months has dropped this month. UK inflation has been above the % target since December 009 and is working against an export-led recovery as it is negatively impacting exporters competitiveness abroad. JUNE 0 09 POINTS APR 0 0 POINTS MAY 0 POINTS PESSIMISTIC OPTIMISTIC Media enquiries: Jennifer Berlin, 00 0, jennifer.berlin@travelex.com

2 JUNE 0 Greek woes damage UK trade confidence Business concern over weak economy Having flatlined for the last two quarters at 0.%, business confidence in economic conditions has tumbled as economists have taken a negative view that growth will dip to 0.% in the second quarter of 0. Almost a third (%) of UK businesses trading internationally feel that the economic situation has worsened over the last six months, up % since (%). Whether this is due to consumers tightening their wallets because of stagnant salaries and rising inflation or the impact of the extra bank holiday and Japan s earthquake and tsunami disrupting the supply chain, recent months have proved difficult for businesses trading internationally. Inflation fears impact hopes for an export led recovery recorded a 0% fall in confidence in an export led recovery the lowest confidence level recorded since the Index started (: %, : %) despite the pound tumbling against most major currencies, during the research period. The pound plummeted following s Bank of England minutes published on, which revealed only two members voted for a rate increase. It is likely that inflation anxiety is the main reason for this transition, as in spite of the weak pound, exporters are faced with rising input costs, squeezed margins and forced price increases. Seventy per cent of exporters are concerned that a further increase in inflation, from the current.%, will negatively impact their competitiveness abroad, and adversely affect their business. This is up % since 0 (%). Rising inflation is also a major concern to UK importers, as the Index recorded % increase since in the number of importers international trade being adversely affected by the UK economy (: %, : %). Concern over double dip With a tumbling UK economy, businesses are concerned that we run the risk of dipping back into recessionary territory. Over two fifths (%) of UK businesses feel that a double-dip recession is likely, up % since (%). With the deteriorating European debt crisis and the likelihood that Greece will have to default or reschedule its debts, many are expecting a prolonged period of anaemic growth and believe that there is a risk of returning to a financial crisis. However, despite the view that the MPC will sit tight for the remainder of this year, the UK s recovery is expected to strengthen from the first quarter of 0. Greek crisis knocks confidence in future trade conditions As Europe considers its part in bailing out Greece and stabilising the Euro, the possibility of a domino effect looms over Portugal, Ireland, Italy, and Spain (PIIGS). UK importers and exporters confidence in future international trade conditions decreased by % (: %, 0%), with recent activities in Greece looking to be the cause. Last week, Bank of England Governor Mervyn King warned that small businesses will bear the brunt of the crisis and confirmed that the Bank has discussed contingency plans with the UK Government, in the event of a Greek default. Mar Apr Jun Confidence Index (TCI) Current Situation Index International Trade Index Expectations Index Everything is getting more expensive, for instance product material, fuel it s making it very hard to compete against the Far East, Importer and Exporter, trading mainly in Europe Media enquiries: Jennifer Berlin, 00 0, jennifer.berlin@travelex.com

3 JUNE 0 Index at a glance Travelex Confidence Index (TCI) Research took place between the nd th 0 The Travelex Confidence Index dropped two points in to 09. Sub-indices The Travelex Confidence Index measures the views and sentiments of the UK s importers and exporters across these sub-indices: Current Situation Index, International Trade Index and the Expectations Index. Confidence Index Aug Sep Oct Nov Dec Jan Feb Mar Apr The Current Situation Index The Current Situation Index monitors importers and exporters views on current economic conditions and availability of business credit. This index dropped two points in to 0 following a % increase since (%) in the number of UK businesses feeling that the economic situation has worsened over the last six months (%). Current Situation Index Aug Sep Oct Nov Dec Jan Feb Mar Apr Jun The International Trade Index The International Trade Index measures importers and exporters views on trading conditions. This index dropped five points in to 0. This was caused by a % increase in the number of importers international trade being adversely affected by the UK economy (: %, : %). International Trade Index Aug Sep Oct Nov Dec Jan Feb Mar Apr Jun The Expectations Index The Expectations Index measures importers and exporters views on whether international trade conditions will improve over the next - months, and whether their business will see growth in its international activity. This Index dropped four points in to 0. The % drop to 0% in businesses confident that international trade conditions will improve over the next months affected this index (: %). Expectations Index Aug Sep Oct Nov Dec Jan Feb Mar Apr Jun Media enquiries: Jennifer Berlin, 00 0, jennifer.berlin@travelex.com

4 JUNE 0 Demographics Issues affecting growth Overseas customers and suppliers Overall health of the global economy 9 Asia Cheaper competitors Currency volatilaty Reduced budgets International regulation and compliance Credit availability Efficiency of international payments Political influence Balance of trade data Lack of human resources None of the above Europe North America (USA) South America North Africa South Africa Australia New Zealand Industry sector Business location Manufacturing England Construction Fuel, utilities and mining Wholesale/retail trade 0 Wales Scotland March Hotels and restaurants Transport/ storage Communictions Real estate Business services Health/social work Recreational/ personal services Media enquiries: Jennifer Berlin, 00 0, jennifer.berlin@travelex.com

5 JUNE 0 Feedback from importers and exporters interviewed in In, we asked importers and exporters how rising inflation was affecting their business Exporter trading mainly in Europe I m more concerned with people who work here regarding high inflation. We can t afford to increase the pay in line with inflation. It s therefore the people who work here who are suffering through high inflation rather than the business itself. We try wherever to pass inflationary increases onto customers. Everything is getting more expensive, for instance: product material, fuel making it very hard to compete against the Far East. Importer/Exporter trading mainly in Europe Inflation just completely reduces profit margins and then the viability of the company obviously. Importer/Exporter trading mainly in Europe We deal in food and the constant increases in prices for ingredients, raw materials and packaging means that we have to pass them on to our customers, or fail as a business. Of course the more our prices go up, the less we sell, which causes us to fail as well. Manufacturer, trading mainly in Europe We are only a small business. When monies is owed to us, that s the main problem we have. Everything else we can cope with and work around, it s when we have to pay tax bills, suppliers and all our clients take longer to pay the invoices. Importer/Exporter trading mainly in Asia Inflation doesn t really affect us; apart from the fact that we have to keep putting our prices up. ABOUT THE TRAVELEX CONFIDENCE INDEX (TCI) The Travelex Confidence Index measures the views and sentiments of the UK s importers and exporters. The index is based on the response to three core question areas the respondents appraisal of current international trade and economic conditions, respondents appraisal regarding ability to obtain credit and the respondents expectations of future international trade conditions over the next to months. For more information on the TCI visit ABOUT TRAVELEX GLOBAL BUSINESS PAYMENTS Travelex Global Business Payments is a global foreign exchange specialist providing the payment and receipt of domestic and international funds for businesses of all sizes. For more than 0 years, Travelex Global Business Payments have provided clients with sophisticated market knowledge, leading edge technologies and practical and innovative solutions tailored to business requirements. Every year, Travelex Global Business Payments processes payments around the world for over,000 businesses. This report has been prepared solely for informational purposes and does not purport to provide any financial, investment or professional advice. Travelex makes no representation, warranty or condition of any kind, expressed or implied, in this report. Wholesale/Retailer trading mainly in Europe Travelex Global Business Payments Limited. In Great Britain, services will be provided by Travelex Global Business Payments Limited (registered number 0) Registered Office - Kingsway, London WCB TD. Travelex Global Business Payments Limited is authorised by the Financial Services Authority under the Payment Services Regulations 009 (Reg. no: ) for the provision of payment services and is also a registered MSB with HM Revenue & Customs (Reg no: ). Travelex is a registered trademark and is used by Travelex Global Business Payments Limited and its group companies under license. Media enquiries: Jennifer Berlin, 00 0, jennifer.berlin@travelex.com