International trade increasingly important to UK firms

According to the latest Santander Trade Barometer, 47% of UK businesses polled say that international trade is of increasing importance to them, with more than a quarter of UK-only businesses now considering expanding internationally in the next three years. The top three markets identified by respondents as potential opportunities are the US (35%), Canada (21%) and Australia (21%).

Meanwhile, the percentage of businesses viewing France or Germany as attractive trading partners has declined, possibly due to the restrictions imposed by the UK’s exit from the EU. The above-mentioned Santander Trade Barometer also showed that only 22% of businesses trading internationally said they found it easier than five years ago. Companies reported needing more help from both the government and third parties, with the most requested services being help with regulatory requirements and bureaucracy (35%), tax breaks (29%), finding overseas customers, business partners and suppliers (26%), identifying suitable markets (26%) and recruiting suitable staff in the UK (25%).

Inflation, energy prices and geopolitics all pose challenges

Inflation remains the greatest challenge for UK businesses, with 48% of respondents to the Santander survey citing this as a major risk. Other factors include labour costs, high energy prices and high interest rates. Some sectors have also been heavily impacted by geopolitical events: 30% of UK companies involved in wholesale and retail trade say the attacks on shipping in the Red Sea have posed a threat to their business, disrupting supply chains and increasing delivery times.

There’s a striking difference in the performance of goods exports and service exports. While services trade has grown by 14% since 2019, research indicates that the UK’s goods exports have contracted by 13.2% and imports by 7.4% since 2019. These figures are far above that of any other G7 country. This has affected both EU and non-EU trade, and disproportionately affects small- and medium-sized companies, particularly those exporting a limited range of products.

The UK’s trade performance: latest trends

Given the problems posed by geopolitical instabilities, many UK companies are examining their supply chains. The Santander Trade Barometer notes a trend towards 'reshoring’: 30% of UK businesses already plan to move, or have moved, their supply chains closer to the UK to enhance resilience and mitigate geopolitical risk. This is particularly relevant for businesses dependent on China, with 34% of energy, construction and engineering firms and 31% of technology, media and communications companies moving their supply chains away from the country.

The increased complexity of doing business with the EU has also led to companies having to invest in additional resources to navigate the restrictions imposed on the freedom of movement of goods and people. While the Trade and Co-operation Agreement allows tariff-free trade in goods between the UK and EU, trade barriers are higher than before.  Although border disruptions are expected to lessen with time, others (such as customs duties and levies) appear to be here to stay – unless a future government is prepared to renegotiate the UK’s relationship with the EU.

Going global: hints and tips for UK businesses

With the World Trade Organisation listing over 300 regional trade agreements, it’s easy for businesses to feel overwhelmed by red tape. However, the Department for Business and Trade has a useful checklist of trade barriers as well as a step-by-step guide on duties and customs procedures for exporting goods. Companies can also take advantage of the government’s UK Export Finance service, which helps businesses of all sizes to access the finance and capital they need to export.

Gaining a better understanding of the rules and preferences set out in trade agreements can help customers optimize their supply chains, minimize tariffs on imported goods and manage their compliance risks. While end-to-end visibility of supply chains isn’t always possible, using systems with real-time tracking, evaluation and reporting functions can help to identify risks at an early stage and implement countermeasures. Additionally, choosing the right supply chain partner is crucial to ensure local knowledge and support with compliance.