Confidence gap widens as firms see little economic cheer this year but are optimistic about own prospects

January 5, 2024

Fewer than one in five West of England businesses have confidence in the UK’s economic outlook this year, according to a new survey – yet almost two-thirds are optimistic about their own prospects.

Key challenges identified by firms in the region as 2024 gets under way are interest rate levels and labour shortages, according to the latest Quarterly Economic Survey (QES) from Business West, the organisation behind Bristol Chamber of Commerce.

Some 71% of the 300-plus firms taking part in the survey said the labour market remained a problem, with skilled manual/technical and professional/managerial positions particularly difficult to recruit for.

Meanwhile, 69% named general economic conditions as their main source of concern – in sharp contrast to the 62% who expressed confidence in their prospects for the next 12 months.

Business West, the region’s largest business group, said QES results over the past year had consistently shown a disparity in confidence levels between businesses’ own prospects and their outlook for the broader UK economy.

This continued into the fourth quarter of 2023, with firms expressing significantly higher confidence in their own growth potential compared to that of the national economy.

Just 19% expressed confidence in the UK’s economic outlook.

And while the labour market remained tough, hiring activity among the region’s firms increased in the quarter, with 22% reporting their headcount had risen.

Expectations on profits for the next 12 months also remained positive, with 48% anticipating an improvement in their margins.

The net balance of UK sales and orders returned to positive territory during the three months – 7% and 2% respectively – indicating a recovery in domestic demand. Service sector businesses and manufacturers both reported improved domestic sales performance.

International trade performance also returned to positive territory after some sharp declines over the past 24 months – although the net balance of both export sales and orders was just 1%.

Exporting manufacturers reported a sales net balance of 5%, suggesting a stronger recovery in the sector.

Business West director of policy Matt Griffith, pictured, said it was encouraging to see the “resilience and adaptability of the steely-nerved South West business owner”.

“It is a really challenging time for business owners across our region, yet the majority are confident in their own prospects,” he added.

“The easing of inflation and a potential peak in UK interest rates seem to have helped business sentiment, but stubborn labour market issues are persisting, making it harder for firms to grow and invest.”

He said it was also good news that the net balance of UK sales and orders, and international trade performance, had finally returned to positive territory after two years.

“However, there is a real lack of confidence in the UK’s economic outlook,” he added.

“Our survey clearly demonstrates the need for a more stable and supportive business environment.”

The Business West survey’s findings were echoed in a report from Lloyds Bank, which also showed that hiring more staff, improving productivity and targeting growth were the top priorities for firms in the region for 2024.

More than half (53%) expect to hire more staff this year, and with the expectation that inflation will continue to fall, 76% are confident of higher profits compared to 2023.

Some 71% also expect their turnover to increase in 2024. Of these, 27% anticipate growth of 5% to 10%, with around one in six looking at growth of between 11% and 20%.

The Lloyds survey also revealed that many firms want to ensure they have healthy cashflow this year, with 36% planning to keep a closer eye on costs.

The survey also showed that:

  • 43% of firm want to increase staff wages,
  • 34% are focussed on developing their business,
  • 32% are committed to investing in training.

Lloyds Bank Commercial Banking South West director Amanda Dorel, pictured above, said: “While last year had its challenges, the recent fall in inflation and stabilisation of interest rates are helping to create an environment where South West firms are feeling more confident to take steps to boost their productivity and target growth.

“It’s encouraging to see firms in our region setting ambitious plans for 2024. Hopefully, we will see demand for our world-class tourism and hospitality services improve further, and help fuel growth across the region.”

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