As statistics go, the following is pretty breathtaking: after a worse than expected export performance in December, the 2006 deficit on the trade in goods and services was pushed to £55.8bn, up from £44.6bn the previous year—the biggest shortfall since records began, in 1697. It means that the UK's trade gap has ballooned to its widest since William of Orange was on the throne.
For the UK's army of exporters a slowdown in global growth has been compounded by the strength of the pound, which reached $2.01 in April. According to the Confederation of British Industry's quarterly survey in February, businesses are concerned that their high prices will constrain exports.
David Morris, managing director of Landsbanki commercial finance, says the only solution to poor conditions for exporters is to deflate the currency. "The pound has been strong for seven or eight years, but sterling has become a smaller currency as a result of the eurozone. Conversion to the euro may be a solution."
A strong pound has a double-whammy effect: it makes it hard to sell to other countries, and at the same time UK consumer appetite for imported products rises. But despite the perceived gloom, experts such as David Brooks, head of M&A at Grant Thornton corporate finance, are convinced opportunities are still available. "People say exporting is not easy, but it is not gloomy," he says, adding that the strong pound is only an issue for those firms that want to export to the US, not those that target India and China. "There is a full recognition among UK companies that they have got to broaden their horizons," he says.
Morris agrees, but warns a slowdown across the pond could lead "to the US putting up trade barriers, which affects everyone's ability to export to them."
He says there is a growing reliance on new markets. Where once Europe bought goods and services from the UK, it has now been replaced by China, Taiwan and South Korea, as well as India and even parts of South America.
Trevor Williams, chief economist at Lloyds TSB corporate markets, says exporters have to be smarter and target the fast-growing Asian markets. Easy to say, much harder to do—especially for mid-sized firms, as Brooks points out. Options range from joint ventures to putting an agent on the ground. Brooks says M&A is also back on the agenda and UK firms are targeting companies in the new economies to arrange trade agreements. "There are hurdles, but firms have to take advantage of India and China," insists Brooks.
One reason for the emergence of new markets is the shift in the type of goods and services UK firms export. "We are not strong in areas such as manufacturing anymore. But we are in areas like financial services," says Morris. "There is a lot of money in China and what we export there is capital and people."
Williams agrees that UK firms are exporting differently. "It is now about marketable services, business services, management services, education services, and consulting. It is about selling knowledge and how you run things."
One other difference is that the trade deficit is no longer considered the harbinger of doom—30 years ago the deficit caused a sterling crisis. Today there is more long-term finance coming to the UK, rather than short-term speculative cash. Williams says: "Our balance of payments are not in crisis." And he adds that the rest of the economic indicators suggest there is no need for exporters to panic. "Global growth is picking up," he says. "And there is some evidence from our own surveys that the strong pound is keeping inflation down."
Even the recent stockmarket wobble has failed to shake the positivity of some commentators. Brooks says the sell-off will have little impact on long-term plans for exporters, while Morris says the main problem is "that it is hard to tell what the global economy is doing. All the indications we see in Europe are that there is underlying growth." And he points to opportunities in the accession countries such as Poland and Bulgaria.
Although Gordon Brown should be alarmed at the hurdles faced by the UK exporters, Williams points to the Institute of Directors' Competitiveness Survey, which sites regulation as the biggest obstacle to UK competitiveness among firms. It shows that some 31 per cent of respondents advocate less regulation followed by 19 per cent who advocate less tax.
Exporter optimism prevails. At the start of the year, a survey carried out by the Economist Intelligence Unit for UK Trade & Investment suggested that business leaders were more bullish than ever. The report said: "If optimism is any guide, 2007 is shaping up to be a vintage year."
