UK Importer costs & revenue forecast: Q4 2017

07 Sep 2017 Category: Finance, Importing, UK Import economy, UK Import exchange rates Posted by: Paul

Every quarter we attempt to predict what import finance will be required in the following quarter by analysing historic importer costs & revenue against future key UK economic indicators.

After all, as a Business supporting UK importers finance their £360Bn contribution to UK consumption, our earnings are absolutely linked to how confident they are in placing orders for consumption 3-4 months ahead.

Below is our thought process with references to the sources we use.

We thought sharing our analyses might be useful and if that proves correct we’ll reproduce our forecasts each quarter.

If you find this information useful please comment or share on Twitter and Facebook for the benefit of other importers.

UK Importer costs & revenue forecast Q4 2017 – Summary:

Our prediction is marginal increase in profitability for importers due to reduced import costs during October and November but no chance of improving that further by increased prices or sales potential for those goods when available for sale in November and December.

Therefore we are not expecting any increase or decrease in import orders or therefore, increase in demand for import finance for goods, components, commodities, machinery or equipment to be resold by 25th December.

Importer costs & revenue – 2017 to date:

2017 UK import trade deficit stable

A year after the EU referendum the UK trade deficit appears to have stabilised at ~£9.5Bn [Figure 5 above : ONS].

By the same time, end Q2, the devaluation of £sterling appears to have halted and import prices fell slightly [Figure 6 below: ONS]

Slight rise in 2017 UK import prices

Importer costs & revenue – Q4 17:

September & October are busy times for importers ordering their Christmas stock from China, USA & Europe.

So what’s the outlook for:

  1. The costs they’ll pay for goods shipped in September & October?
  2. Prices they’ll be able to charge for those goods in November & December?

Currency exchange, interest and inflation rates plus consumer confidence indices are all key factors toward helping importers predict:

  1. How much stock to import?
  2. Will 2017 be a good or bad trading year?

We are not economists but a group of international business people just like the importers whose imports we arrange finance.

However, since the money we’ll make from funds lent to our import clients is inextricably tied to those same factors this is a snapshot of our thoughts and overall predictions.

Currency exchange rates – Q4 17:

Pound to Dollar:

The lowest value year to date was 1.17, (7th October 2016).

Today with a pound to dollar value at 1.30 and forecast to be similar or better during October and November, the outlook for lower import costs for goods traded in US dollars is good.

Pound to Euro:

UK Pound to Euro 2017 exchange rate

Recent slim gains with the pound to euro now at 1.09 are unlikely to remain as the ECB decide on both the future of European interest rates and their reduction of the market stimulus programme.

However, the gains and likely reset are insignificant to the dramatic 9 month pound to euro devaluation from 1.20.

So, the outlook for lower import costs for goods traded in euros is poor to nil.

Inflation & interest rates – Q4 17:


source: tradingeconomics.com

Still above the 2% target the UK’s Monetary Policy Committee meeting in August 2017 ,(“MCP”),predicted inflation rates to peak at 3% by August but not fall below 2.75% by the end of the year.

Whilst the prediction is that interest rates will rise from Q3 2018 the current rate will remain for 2017.

Since the failure to meet the 2% target is largely blamed on Brexit, the consequent devaluation of the pound and therefore increased import prices, the MCP noted that sterling had stabilised thereby reducing import price related pressure in Q4.

Watch the full review: MCP televised report

Consumer confidence – Q4 17:

The steady rise in inflation is only half the story. Add the steady and continual decline in UK consumer confidence and outlook for a bumper Christmas spend is nil.

 


source: tradingeconomics.com

So we’re already at zero expectation of an improved sales revenues for Q4 and Christmas period but the second, and probably bigger story of Q3 was the evidence of stagnating and forecast reducing net wages.

In reality wages grew 2.1% and are predicted to continue to grow as inflation stabilises so on that basis consumers ought to have more to spend on imported goods.

However reality often lags behind feeling in a 24 hour sensationalist driven media world.

Hence overall we’re predicting zero chance of increasing retail prices and therefore revenues for importers in 2017.

Importer costs & revenue Q4 17 – Summary:

Since the majority of UK imports come from China and USA the rallying pound to dollar rate will improve importer costs.

For food imports from Europe the current costs and hence prices we’ve all noticed in our weekly shopping bills will remain.

Therefore our prediction is marginal increase in profitability for importers due to reduced import costs during October and November but no chance of improving that further by increased prices or sales potential for those goods when available for sale in November and December.

PJ

 

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