Importers and Exporters warn UK on verge of double dip

UK based British importers and exporters have warned that confidence in the economy has hit an all time low and that the threat of a double dip recession has become more of a reality in the run up to the Budget than at any other time.

In a recent survey of importers and exporters some 51% confirmed they held the belief that a double dip recession is likely which was a 17% jump from the same question in January 2011. A staggering 45% also confirmed that they are concerned the Chancellor’s Budget will impact negatively on their businesses.

The Nationwide (Building Society) Consumer Confidence Index fell back ten points in February, bringing the Index to its lowest level since the survey began in May 2004 as consumer exercised caution in general spending, the housing market and hopes of recovery.

Another index, the Current Situation Index, which monitors the views of importers and exporters on current economic conditions and availability of business credit, fell to a record low to 94, which was a

seven point decrease. Many cited access to credit remaining a key problem, with some 52% of importers and exporters saying it is still no easier to obtain credit in 2011 than it was in 2010, which confirms many publicly held beliefs and goes counter to the mantra from the banks.

Another index, the International Trade Index also tumbled 14 points since its high of 113 in November, as importers become increasingly concerned over the impact of a sluggish and stalled consumer demand, amid a backdrop of rising costs.

Lastly, even the Expectations Index (which can’t be too high in any case), and which historically has remained relatively stable, fell by one point to 99, perhaps indicating a moderate chink in the resolve of importers and exporters. Furthermore, only 56% of importers and exporters quizzed said they were confident about future trading conditions, which was a 4% drop from the previous month.

David Sear, Global Managing Director at Travelex Global Business Payments (whom commissions the survey) was quoted saying “It is an unsettling time for British importers and exporters, as uncertainty over the economy grows in the run up to the Budget,” comments.

“Confidence plays a huge part in our economy as individuals and businesses tend to spend more the more confident they feel. In this current climate it is less easy for importers and exporters to feel confident. Last month we saw the trade deficit widen to the highest on record, which shows that exports are not supporting the recovery as expected.”

Although the figures and indices are useful and add weight to the argument many consumers and business owners don’t need the weather report to see a storm cloud in the sky. In the case of the UK plc, cuts, cuts and more cuts, combined with tightening of household spending, wage freezes, cost of living spiralling upwards and businesses not investing whilst at the same time seeing every available penny being squeezed from an already dry sponge doesn’t make for confident times.

One only has to look outside to see that it’s raining and in the case of UK plc, the rain is very much a sustained downpour.

Confidence in Real Terms

The problem with confidence is that until real change is felt it can be a self fulfilling prophecy which produces a downward spiral of cause and effect. As businesses see their costs go up, they put the prices up which in turn reduces demand from the consumer and reduces the amount of sales. This in turn reduces the total income and puts more pressure on prices to increase in order to cover the reduced levels of demand and so on and so on. It is only when stabilising events occur that confidence can hope to return and with all the inflation indexes (bar wages) going up there is little hope for confidence to return in the short term.

As a direct result of low confidence, businesses and households take less risk. They tighten their belts and look to save money. They don’t invest/spend on big purchases and although they make take on more debt, that debt is usually to aid cash flow. At the same time, households and businesses spin out their own bills later and later and pay their supplier’s later, which has a profound knock on effect.

Double Dip?

A double dip would be devastating to the already fragile UK economy and as the banks are less risk averse than at the start of the credit crunch, many businesses won’t be able to access credit and trade out a second recession so soon to the last. More business failures, longer debtor days and bad debt problems already plaguing the UK economy could trigger a fresh wave of high profile business administrations and banking failures.

Let’s see what the Budget brings and in the meantime, if you are concerned how rising costs, late payments, bad debts and business failures of your customer base will impact on your business, speak to CCDR and we can advise you on how to put a suitable plan in place.

For preventive services such as outsourced credit control to the reactionary services of debt collection and debt recovery services available from CCDR, we can make sure you have suitable protection for your cash flow and lessen the impact of late payments and risk of bad debt.

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