Increased balance of trade deficit. So what?

Cooper Parry Corporate Finance

This blog post has been produced for the Greater Birmingham Chambers of Commerce to provide industry insight on the findings of the Birmingham Economic Review.

The Birmingham Economic Review 2017 is produced by the University of Birmingham’s City-REDI and the Greater Birmingham Chambers of Commerce, with contributions from the West Midlands Growth Company. It is an in-depth exploration of the economy of England’s second city and is a high quality resource for organisations seeking to understand Birmingham to inform research, policy or investment decisions.

This post is featured in Chapter 11: Inward and Foreign Direct Investment of the Birmingham Economic Review, which can be found here. You can read the full report and report summary here.

In the figures released this week, we have seen an 11.3% increase in our balance of trade deficit for the quarter to June (£34.4bn) compared with the same period last year. This fall is in spite of the devaluation of sterling since last year's EU referendum, which, should have in theory, made British goods and services more attractive to countries with stronger currencies. Indeed, it is now the service sector that is making the strongest contribution to the balance of trade with an improvement of more than 10% in the last quarter and with an expectation to reach £100bn for the year.

Britain has real strength and depth in financial and professional services. Cooper Parry Corporate Finance is working with a number of software businesses that are developing world-leading services, which are driving growth and efficiencies internationally and bringing revenues back to the UK.

We know that investors have a huge appetite for these businesses, whether they are in 'fintech', wider financial services, software or professional services.

The growing trade deficit in products is a long-term structural issue with no easy fixes. However, despite the challenges, we also are working with local businesses that not only have world-beating products but who have also invested massively in research and development and plant to enable them to service increasing demand.  These businesses are highly attractive to debt and equity funders who are hungry to make investment. We recently advised the shareholders of Johnson's Aggregates on the investment made by BGF into their highly innovative recycling business – they are now continuing to lead their market and are taking advantage of every new opportunity presented to them.

So, where does this leave us? It was an odd week on the capital markets with both long-term bond yields and stock markets both trending down.  I’ll put this down to thinner trading in the summer months for the time being – but it’s something to keep our eyes on over the next few weeks.  The good news is that there is still lots of money looking for investment in both capital and private markets. And there are still lots of exciting businesses with incredible products which are looking for that money to help them to propel their business forward…

Andy Parker
Partner, Cooper Parry Corporate Finance