Stronger sales and profits forecast by region’s firms as lower inflation sparks big rise in confidence

May 1, 2024

Business optimism is increasing rapidly in the South West as lower inflation is expected to trigger strong sales and profits growth, two new survey show.

Confidence among the region’s firms has surged over the past six months at more than three times its usual rate, according to the latest Business Confidence Monitor (BCM) from the ICAEW, the group representing accountants across England and Wales.

Meanwhile, the latest Lloyds Bank Commercial Banking Business Barometer shows that optimism among South West firms soared by 27 percentage points last month to 45%. 

This reflets not only higher confidence in their own business prospects month-on-month – up 25 points at 53% – but also in the wider economy -  up 27 points to 36%.

The Business Barometer also reveals the top growth areas for South West firms over the next six months include launching new products and services (37%) and investing in their teams, including hiring new staff and investing in training (34%), while 29% said they planned to enter new markets or invest in new technology.

A net balance of 33% of businesses in the region also expect to increase staff levels over the next year – up 38 points on March’s  figure.

The BCM shows firms in the South West are recruiting more staff at a faster rate than those in other regions and are also raising salaries at a higher rate.

The findings of the BCM for the first three months of this year put business confidence among South West firms at 13.4 – significantly above the historical average of 4.1 for the region.

Despite this increase, the region is still making up for last year’s sharp drop in confidence and remains marginally behind the national average of 14.4.

The marked turnaround is based on strong sales growth, which is expected to improve further in the coming year, the ICAEW said. 

Domestic sales growth of 4% in the first quarter was higher than both the region’s historical average of 3.1%, and most other UK nations and regions.

Sales are expected to increase by 5.6% in the year ahead, a rate which is also better than the national figure.

Exports from South West firms also grew – at 3.6% over the past 12 months the increase was higher than the historical average of 2.7%, with growth of 5.7% forecast in the year ahead.

If achieved, this would be the fastest growth of anywhere in the UK, according to the ICAEW.

The strong growth in sales, coupled with easing cost pressures, has led to profits growth of 4.6% in the region – nearly double the national average of 2.4%.

This is expected to continue over the next year, with a predicted profits growth of 5.5% far higher than the average over previous years of 3.1%.

However, businesses continued to report a number of growing challenges. Regulatory requirements were the most common issue facing South West firms, with nearly half of all businesses citing it as a headache.

Three in 10 businesses reported customer demand, tax and the availability of non-management skills as growing challenges.

South West firms increased hiring by 2.7% over the past year, the strongest rise in the UK and nearly double the historical average of 1.4%, the BCM shows.

Employment growth in the South West, at 2.8%, was expected to surpass the UK rate of 2.2% over the next year. 

Lloyds Bank Commercial Banking South West director Amanda Dorel, pictured above, said: Rebounding confidence among South West businesses comes amid fast-changing economic conditions, particularly slowing inflation – which could improve the region’s growth outlook.

“Businesses remain focused on taking advantage of opportunities. Encouragingly, we’re seeing investing in teams as one of the top priorities.

“This is especially important for the region’s strong hospitality and tourism firms as they head into the crucial summer season after a damp start to the year.”

ICAEW South West director Beverley Waters, pictured, said it was heartening that business confidence in the South West had risen for the second consecutive quarter.

It was likely that relatively strong sales and export figures had given businesses reason to be optimistic.

“Input price inflation for our firms is on a reassuring downward trend, which should lead to some stability after a challenging period, and strong profits growth is expected to continue,” she added.

“The UK economy is less resilient than it should be, leaving it vulnerable to shocks and less agile to embracing innovation

“Building an economy with resilience at its core, an end to weak productivity and making the UK the best place to run a business, must be among the next government’s top priorities.”

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