Importers and exporters lack confidence in recovery

July 8, 2010

BRITAIN/

-David Sear is the global managing director at Travelex Global Business Payments. The opinions expressed are his own.-

Despite the UK officially emerging out of recession in the first quarter of 2010, the confidence of importers and exporters in a sustained recovery remains extremely volatile.

The Travelex Confidence Index’s monthly outlook on international trade recorded a 5 point fall in confidence in June to 103 and the Expectations Index, which measures confidence in future trade and economic conditions, fell 12 points to 94.

The Index was carried out between 18th June and 1st July during the period the Emergency Budget was announced on 22nd June.

Speculation over the ‘age of austerity’ has had a marked impact on importer and exporter confidence in June. With Chancellor Osborne’s spending cuts and tax hikes dominating the headlines, the figures suggest it was an unsettling month for UK importers and exporters.

In particular, the VAT rise may have affected importer confidence, as it could undermine consumer consumption.

The overriding message that came through was that importers and exporters seem concerned the UK’s fragile economic recovery will lose momentum over the next 12 months and fiscal tightening may push the UK back into recession.

According to the Travelex Confidence Index, 27 percent of UK importers and exporters now feel that the UK economic recovery is not sustainable, compared to 18 percent in May.

Less businesses now feel confident that there will be an export-led recovery too, recording a 9 percent drop in confidence. As major economies begin to withdraw stimulus, I expect to see a downward trend in economic confidence in the coming months.

Despite their concern for future economic conditions, importers and exporters view of current international trading conditions was upbeat, with 68 percent expressing confidence.

Sir Andrew Cahn, CEO of UK Trade & Investment, comments, “It is encouraging to see that exporters are generally upbeat, if understandably cautious, about current international trading conditions.

Creating a more positive business environment, supporting growth and concentrating on developing a more balanced, low-carbon economy, which is less dependent on a narrow range of economic sectors, will be key to driving the economy out of recession.”

However, one thing is clear – with the economic recovery so uncertain, I think the Bank of England will keep interest rates on hold until the beginning of 2011 at least.

Raising them earlier will only impact business and consumer confidence and threaten continued economic recovery.

What do you think? Post your comments below or on twitter (@fxpayments)

Picture Credit: A freight ship leaves Southampton docks in this file picture. REUTERS/Kieran Doherty

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