Mervyn King warns UK growth in 2011 will be weak

Small- to medium-sized businesses (SMEs) looking for growth in the UK economy this year are likely to be disappointed. In the Bank of England’s (BoE) Quarterly Inflation report, Mervyn King, governor of the BoE, revealed that growth this year will be weaker than previously estimated.

In addition, inflation rose to four percent in January, double the bank's target, with King confirming that figure is likely to reach five percent before falling to about two percent in 2012.

With such grim news at home, it is no surprise that SMEs are being braver about looking to emerging markets for growth. According to a biannual survey of more than 6,000 SMEs in 21 countries carried out by HSBC, 40 percent of the world’s SMEs will be doing business internationally by 2013.

In the UK, 20 percent of SMEs are currently trading internationally while HSBC’s international trade finance lending to UK business was up 13 percent in the past year, it says.

Tim Vye, operations director at Reed Finance, which specialises in recruiting finance professionals, says he has seen an increase in SMEs requesting candidates with international experience.

“That is partly as a result of the trading conditions in the UK,” Vye tells Financial Director. “SMEs are diversifying their business and they are looking for target markets abroad.”

In January, the continuing inflationary pressures faced by the British economy caused input costs for manufacturers to rise to their highest annual rate in more than two years, data from the British Retail Consortium shows.

Vye says that manufacturing companies in particular are increasingly looking to set up factories in central and eastern Europe.

“High-tech manufacturers are going to look to produce goods overseas cheaply,” he says. “The transport cost might be high, but they can gain value overseas through the efficiencies of doing so and the opportunities to trade in those countries.”