Sluggish U.S. economy may threaten UK business development

August 10, 2010

– Paddy Earnshaw is the Director of Customer Relations at Travelex Global Business Payments. The opinions expressed are his own.-

British importers and exporters’ confidence in the economy leapt in July, as positive economic data fuelled hopes for a return to strong economic growth. According to the Travelex Confidence Index (TCI), which jumped 12 points in July to 116, from 104 in June, strong gains were driven by quarter 2’s GDP figure, as it showed the UK grew at its fastest pace in four years.

Momentum seems to be building in the UK economy – only 6 weeks ago, we feared the worst for Europe, as the sovereign debt crisis unfolded. Now it is the U.S. which seems to face the steepest challenge. Certainly, we expect the deteriorating picture in the U.S. to crimp importer and exporter confidence in the upcoming months, as 8 out of 10 respondents (84 percent) feel the threat to business development comes from the health of the global economy.

U.S. employment data was worse than expected on Friday, revealing that the U.S economy shed 131,000 jobs in July – roughly double what had been expected by economists. The poor set of unemployment results has only heightened the sense of dread from across the Atlantic – is this the clearest indication that the U.S recovery, in contrast to the UK, is running out of steam?

Despite importers and exporters renewed confidence in the UK economy, I think it is too early to say whether their optimism has been accurately placed, as many uncertainties remain for British importers and exporters. Even as the UK recovery broadens, June’s dip in confidence suggested businesses are fearful of the upcoming austerity measures and the impact they will have on consumer buying power.

So, in the short-term, I would expect to see continued support for the pound as UK data continues to out-perform that in the U.S.

Over the medium-term however, I would expect the UK government’s austerity measures to impact the pound and strong economic growth in the UK.

What do you think? Post your comments on Twitter (@FXpayments)

Picture Credit: A couple walk past closed shops in Birmingham in this file picture. REUTERS/Darren Staples

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