Confidence levels among South West firms worst in UK as economic storm clouds gather

July 29, 2022

Companies in the South West are more gloomy about the economy and their own prospects than those in all other regions of the UK, according to a new survey.

Business confidence in the region fell three percentage points to 11% during July, making it the least confident region in the UK for the second consecutive month, the latest Business Barometer from Lloyds Bank Commercial Banking shows. 

South West companies reported lower confidence in their own business prospects month-on-month, down four points at 23% as spiralling inflation hit home.

When taken alongside their optimism in the economy - down one point to minus 1% - this gives a headline confidence reading of 11%.

Despite this, firms in the region identified their top target areas for growth over the next six months as evolving their offering (34%), investing in their teams (31%), and diversifying into new markets (25%).

The Business Barometer, which questions 1,200 businesses across the UK monthly, provides early signals about economic trends both regionally and nationwide.
A net balance of 8% of South West businesses expect to reduce staff levels over the next year, down 13 points on last month.

Lloyds Bank Commercial Banking South West director Amanda Dorel, pictured, said: “The variety of economic challenges South West firms are currently facing is unlikely to ease in the immediate future. “However, our tourism and hospitality sectors in particular will be hoping for prosperous weeks ahead as the summer holidays bring significantly increased footfall to the region’s sun-drenched hotspots. 

“As businesses in all industries battle with the impact of inflation, it’s more important than ever to maintain effective working capital management to best equip themselves for what lies ahead so they can make the most of any opportunities for growth.”

Overall, business confidence across the UK fell three points during July to 25%. Firms’ outlook on their future trading prospects was up – by three points to 37% – but their optimism in the wider economy dropped nine points to 12%. The net balance of businesses planning to create new jobs also decreased, seven points to 21%.

Every UK region and nation reported a positive confidence reading in July, with four out of 11 recording a higher reading than last month.

The East of England (up 15 points to 46%), West Midlands (up eight points to 38%) and Wales (up seven points to 30%) had the biggest increases month-on-month, with the East of England now the most optimistic region overall.

Business confidence declined across all four of the sectors in July, reflecting lower optimism about the economy.

Confidence within manufacturing declined the most – down 12 points to 20% – with firms citing moderating trading prospects and a notable drop in economic optimism, but also issues with inflation and supply bottlenecks.

There were small falls in confidence for construction (down 2 points to 28%), retail (down 6 points to 25%) and services (down 1 point to 24%).

Lloyds Bank Commercial Banking senior economist Hann-Ju Ho said: “Business confidence declined this month, suggesting that economic headwinds are becoming more forceful.

“Despite this, firms’ assessment of their own trading prospects showed some resilience in the face of a challenging environment.

“Meanwhile, price pressures have shown no clear signs of a downward trend and there appears little sign yet that wage pressures are abating.”

The survey was conducted with 1,200 companies – including 100 in the South West – between 1 and 15 July.

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