It has been a mixed Q3 for the UK economy.  Falling unemployment figures and positive GDP movement have done nothing to assuage fears about rising personal debt levels and the uncertainty caused by the UK negotiating its exit of the European Union. With that, we’ve seen SMEs stutter and pull back from global trade.

Executive summary

  • Less SMEs trade, but average value rises

Continuing the trend for 2017, Q3 saw a slight decline of SMEs trading from 30% in Q2 to 28%. This is 20 percentage points less than the same period in 2016. In real terms, that meant 1.1 million fewer SMEs are trading internationally than they did last year.

  • Fewer SMEs expecting to grow

SMEs have remained pessimistic about growth across 2017. More SMEs don’t expect to see growth by end of 2017. 

  • Decline in hedge contracts across all major currencies

With SMEs shying away from international trade, hedge contracts have declined across 8 of the 10 major currencies with fewer SMEs protecting themselves against currency movements. This indecision and uncertainty could be harming SMEs ability to plan for future growth and trade.

Part 1: The state of global trade: Where are we now?

International trade continues to decline

The decline in SMEs trading internationally continued into Q3 2017 with only 28% of businesses making a trade per month compared to just under half at the same time last year.

Whilst fewer SMEs are trading, average trading amounts have remained fairly consistent, increasing from £44,000 in Q2 2017 to £45,000 in Q3. this is a significant jump from the same period in 2016, where the value of the average monthly international trade was £38,000.

global trade 2

What does the expert say?

Jeremy Cook, Chief Economist at WorldFirst, said:

“In Q3, the percentage of SMEs trading internationally fell to 28%, the lowest we’ve recorded in nearly two years. However, average trade values rose, suggesting that the SMEs that are ceasing international trade are those at the smaller end of the scale. So, while larger businesses may remain resilient and exude confidence, smaller businesses are quietly, but quickly, turning their back on wider global markets. The double-edged sword for small businesses is that by holding back on international trade, they might be limiting their business’s potential for growth and profitability, narrowing their consumer base and not taking advantage of opportunities that lie beyond the British Isles.”

global trade 3

UK SMEs’ trading partners: Declines in all export routes

UK SMEs continue to import and export from all over the world but Western Europe remains the dominant trading partner for UK businesses followed by the USA. However, in another sign that the UK’s economy could be under some strain, exports are declining, not just to the EU but across all regions.

Payment flows show emerging trading partners

As in Q2, Croatia and Malta saw significant increases in payments highlighting both countries as emerging trading partners for UK SMEs. Eastern Europe continues to be a frontier for UK SMEs with Turkey, Bulgaria and Poland also seeing increases in trades with UK businesses.

An emerging market slowdown is emphasized by the payment flows data. As in Q2, we’ve seen significant declines in trades to Mexico and Indonesia. Other emerging market favourites like Vietnam, India, once heralded as the most exciting opportunity for UK exporters, also saw declines by over 20%.

*Only includes destinations where over 100 payments were made


Part 2: Future trade: What’s next for UK SMEs?

SMEs lose confidence as year-end approaches

SMEs’ confidence has continued to dip throughout the year with 33% of SMEs expecting no business growth into Q4, an increase of 1% from Q2’s figures.

The picture for international growth is even gloomier, with 70% of UK SMEs expecting international trade to decline or remain stagnant in Q4. This is especially concerning as Q4 is typically the busiest time of year for SMEs.

  • Only 8% of SMEs’ year end will bring more than 10% growth compared to 10% in Q2

Export potential yet to take off

A weaker GBP was heralded as a driver for strong exports for UK business in 2017, but it’s concerning that SMEs are increasingly reluctant to pursue global trade with even fewer including exports as part of their future plans.

  • Only 22% of SMEs plan to export in the next quarter, compared to the 31% of SMEs who currently export and the 33% of SMEs who exported in Q2
  • As in Q3, declines in exports are expected across all destinations
  • Exports to the USA, the UK’s biggest trading partner outside the EU, is expected to fall the most over the next quarter by more than 11%

What does the expert say?

Jeremy Cook, Chief Economist at WorldFirst, said:

“Our ‘Thinking Global’ report last year showed just how much the UK stands to gain by boosting export capacity among SMEs across the nation: if SMEs exported to the same degree as their large business counterparts, UK exports could rise by £141.3billion – a boost of 25%. As such, the statistics in this report will make grim reading for those hoping government policy would boost business overseas. It’s quite clear that political instability, currency volatility and business uncertainty are holding back SMEs from expanding internationally.

Part 3: Currency and protection. What’s shaping SME behaviour?

BoE rate hike – Will they, won’t they plays on SMEs

In September, the Bank of England intimated that it could move to raise interest rates for the first time in more than ten years. The following trading day saw the value of sterling rush higher and SMEs moved quickly to lock in stronger sterling exchange rates through hedging contracts.

  • In the week of the 11th September, the pound had its strongest week in over eight years, rising over 3% in a matter of days. This followed a number of Bank of England releases hinting that a rate hike may be imminent.
  • On the 15th September, the day following Bank of England meeting, there were 4.4 times more hedge trades placed than the Q3 daily average, and 4.0 times more hedge trades than the six-month average.

Small business attitude toward to international trade is changing

Throughout Q3 2017, SMEs were far less likely to hedge, and therefore protect their business from currency volatility. Hedging contracts purchased by SMEs against some of the world’s most traded currencies including EUR, GBP, USD, JPY, CAD and AUD all fell in Q3 against Q2’s metrics. The HKD (Hong Kong Dollar) was one of the standouts, with SMEs hedging close to 17% more HKD flows than they were in Q2.

What does the expert say?

Jeremy Cook, Chief Economist at WorldFirst, said:

This shift in attitude and trading strategy among SMEs could have been prompted by a number of different factors: less certainty around profit margins and sales estimates, reluctance to commit funds to financial contracts or a broader withdrawal of appetite for reaching overseas markets. We believe the latter argument is the most likely. Our data shows SMEs are less likely to transfer funds overseas than at any point in the last two years, suggesting government’s hopes of a post-Brexit global trade boom with markets far and wide is either misplaced or that current policy is insufficient to incentivise this behaviour.”

Sterling lows fuelling SME woes

  • Two fifths of SMEs (41%) are worried about currency volatility and the impact it could have on their business, an increase of 3% from Q2 and 6% from Q1 2017
  • A third of businesses (33%) have felt the negative impact of exchange rate movements and a quarter (24%) said currency volatility has impacted business investment and growth
  • 4 in 10 SMEs believe a further fall in sterling will negatively impact their business

With Brexit negotiations taking centre stage, the lack of progress is of concern to 44% of SMEs. A third of businesses (34%) worry it will make it difficult to manage their currency volatility.

What does the expert say?

Jeremy Cook, Chief Economist at WorldFirst, said:

“SMEs have been the worst hit by a falling pound feeling the pinch from the rising cost of imports. It is no wonder that continued currency volatility is weighing heavily on their minds as decision makers likely consider potential strategies to combat the loss of income.  Businesses trading internationally now need to be more agile and flexible when it comes to managing international payments. Decision makers need to look beyond traditional methods and ensure that their payments infrastructure is adaptable enough for when markets turn for or against them.”

Part 4: The SME sentiment tracker 

For the first time this year, a rise in inflation has overtaken a fall in consumer spending as the main worry for UK SMEs. Currency volatility completes the top three once again. More businesses are worried about cash flow, with 17% listing it this quarter compared to 14% in Q2 2017. Only a quarter (25%) of decision makers feel confident that their business will not be hampered by external issues beyond their control.

WorldFirst SME Global Trade Barometer

Research Methodology

All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 1016 senior decision makers in small/ medium British businesses. Fieldwork was undertaken between the 16th– 23rd of July 2017.  The survey was carried out online. The figures have been weighted and are representative of all British business sizes.

World First data on client contracts was collated between 1st July 2017 and 30th September 2017 and refers to UK corporate desk clients only.


  • A forward contract is a contract to exchange a specific amount of one currency for another on a future date, at a predetermined rate. A deposit is normally required for forward contracts.
  • To hedge or hedging is to protect against future currency movements
  • In this report, ‘FX’, ‘foreign exchange’ and ‘foreign currency transfers’ refer to the buying/ selling of international money (including the payment of international money).

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