Weak pound strengthens UK's export-led recovery

UK exporters significantly more confident than continental counterparts

The weak pound has fuelled the UK’s export market to such an extent that British exporters are more confident about future export growth than their counterparts in the Eurozone, according to the latest European Business Trends report by accountants and business advisers BDO LLP.

Since 2007, the Bank of England’s monetary policy has been a factor in devaluing the pound by around 22 per cent against the currencies of the UK’s main trading partners.  This compares against the Euro which has gained around 7 per cent in value. 

Such a disparity has resulted in UK exporters having a significant competitive advantage over their European rivals, with UK exporters far more optimistic.   UK exporters boast a 1.2 point rise in optimism over the last three months, compared to a 0.4 point rise in the Euro area¹.

However, while UK confidence around exports is increasing, so too is the threat from inflation.  The BDO Inflation Index reveals that Britain experienced the largest ever increase in the annual rate of inflation in Q4 2009.  The BDO inflation index rose 99.2 in January, a significant increase compared to October 2009’s reading of 93.8.  This compares to the Eurozone inflation index which rose to 89.6 in January from 89.2 in October.

Peter Hemington, Partner, BDO LLP commented: “The Bank of England has got it right so far.  However, there is a risk that low interest rates and quantitative easing could increase Britain’s vulnerability to inflationary pressures. Mervyn King is treading a fine line between higher inflation and economic recovery.  Despite recent encouraging news, the balance of risks is still on the downside and the Bank should continue its activist approach to monetary policy in the near term.”

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Note to editors:

¹ Average export assessment of UK and Euro area manufacturing sector based on PMI new export orders index, European Commission Industrial Confidence export expectations and Bank of England agents export assessment.  Indices were standardised to allow comparison.

The BDO Business Trends Report Indices are calculated by taking a weighted average of the results of all the UK’s main business surveys carried out during the last month.

The Euro area indices are calculated by taking a weighted average of the results of the Europe’s main business surveys. They incorporate the results of the German IFO surveys, French INSEE surveys, Italian ISAE surveys, plus the main business surveys from the Austrian WIFO, Belgium National Bank, Spanish MCYT, Greek Foundation of Economics and Industrial Research, Irish Economic and Social Research Institute, the STATEC survey from Luxembourg, the Confederation of Finnish Industry and Employers, the Dutch central Bureau of statistics and the Portuguese INE surveys as well as the Chartered Institute of Purchasing and Supply’s Surveys of Manufacturing and of Services for Europe.

Methodological notes:

The BDO Monthly Business Trends Indices are prepared on behalf of BDO LLP by the centre for economics and business research (cebr).

Taken together the surveys cover over 11,000 different respondents from companies employing approximately five million employees. The respondents cover a range of different industries and a range of different business functions. Together they make up the most representative measure of business trends available.

The surveys are weighted together by a three-stage process. First, the results of each individual survey are correlated against the relevant economic cycles for manufacturing and services. This determines the extent of the correlations between each set of survey results and the relevant timing relationships. Then the surveys are weighted together based on their scaling, on the extent of these correlations and the timing of their relationships with the relevant reference cycles. Finally, the weighted total is scaled into an index with 100 as the mean, the average of the past two cyclical peaks as 110 and the average of the past two cyclical troughs as 90.

The results can not only be used as indicators of turning points in the economy but also, because of their method of construction, be seen as leading indicators of the rates of inflation and growth.

BDO LLP operates across the UK with some 3,000 partners and staff. BDO LLP is a UK limited liability partnership and a UK Member Firm of BDO International. BDO - Belfast, a separate partnership, operates under a licence agreement.  BDO International is a world-wide network of public accounting firms, called BDO Member Firms.  Each BDO Member Firm is an independent legal entity world-wide and no BDO Member Firm is responsible for the acts and omissions of another member. The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels, Belgium, where the International Executive Office is located.

The combined fee income of all the BDO Member Firms was $5.14 billion in 2008. The global network has 1,095 offices in 110 countries and more than 44,000 partners and staff provide business advisory services throughout the world.

BDO LLP and BDO - Belfast are both separately authorised and regulated by the Financial Services Authority to conduct investment business.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms.

Contact: Laura Gainsford, on behalf of BDO, Tel: 020 7260 2700, Email: laura.gainsford@bluerubicon.com