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Will a strong pound hold UK businesses back from meeting export targets?

POSTED: 23rd March 2015
IN: Business news
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With the pound reaching its highest valuation against the Euro since 2007 this month, will a strong pound prevent British businesses from meeting government export targets?

undefinedAccording to currency authority XE, the pound climbed to 1.38 against the Euro on the 1st of March, representing the highest level seen since the beginning of the financial crisis eight years ago. In particular, uncertainty over Greece’s position within the EU and slow growth amongst member states has caused the Euro’s valuation to tumble over the past year.

Since the EU accounts for 45 per cent of UK exports, according to December figures, a weak Euro places firms under considerable pressure, with the relatively high price of British-made goods threatening to dampen demand from the continent. In spite of this threat, exports to the EU fell by just 0.1 per cent in the year to December; a relatively small decline given the shifting positions of the currencies.

Looking beyond the EU, exchange rates appear to be somewhat more favourable for UK exporters. After reaching a five year high of 1.71 against the dollar in July, the pound underwent a six month slump before rallying slightly in the last month to reach an exchange rate of $1.54, with a similar pattern seen against the Chinese Yuan Renminbi. However, non-EU exports fell by 5.7 per cent year on year, dropping by 16 per cent in December alone and showing a more marked decline than that seen in the European market.

In combination, these factors led to the UK experiencing its widest trade deficit since 2010, with imports outweighing exports by £34.8 billion, though it must be noted that strong imports were to be expected in the face of historically low oil prices. This calls into question whether the UK will be able to live up to the target of achieving £1 trillion in exports by 2020, set by George Osborne in the 2012 budget, with current figures suggesting exports would need to rise by 12 per cent each year to meet this benchmark.

Commenting on the situation, British Chambers of Commerce Chief Economist David Kern stated:

“We are clearly not making adequate progress in rebalancing our economy, and the weakening of the Eurozone is creating problems for our exporters. Much greater efforts are needed to develop a national strategy for boosting exports, with improved access to finance for growing firms.

Despite these challenges, British-produced goods still hold sway over foreign consumers, many of whom see ‘Made in Britain’ as a signal of quality craftsmanship, and narrowing global wage differences led one in nine companies to re-shore production to the UK in 2013. Consequently, there is still an opportunity for UK firms to capitalise on export opportunities by emphasising their British heritage, with lots of useful online resources available to provide guidance on all aspects of overseas trade.

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