Business confidence in South West drops significantly - ICAEW
Business confidence in the South West has fallen into negative territory as companies face challenges including inflation and interest rates, according to a survey published today (Thursday) by ICAEW, The Institute of Chartered Accountants in England and Wales.
Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q3 2023 – one of the largest and most comprehensive surveys of UK business activity – put confidence at -3.2, a considerable drop into negative territory from the 9.9 recorded in the last quarter.
Confidence would likely have fallen further if not for healthy domestic sales which, at the rate of 5.7 per cent in the year to Q3 2023, makes the South West one of the better-performing parts of the UK.
Though the rate is expected to decline to 4.7 per cent in the next 12 months, and if this were achieved, it would still be ahead of the region’s historical norm.
Annual export growth is weak by comparison, but at 2.4 per cent in Q3 2023, it is broadly in line with the usual rate for the region. A similar rate of expansion is expected in the coming year, which would make it one of the slower-growing parts of the UK.
Cost pressures continue to mount for businesses in the South West, with input prices rising at their fastest rate since the survey began, though they are expected to slow significantly in the coming year.
Businesses in the region are also raising their selling prices at record speeds; and these are expected to increase more slowly over the next 12 months, but at a rate higher than the region’s historical average.
Underpinned by rising employment and persistent inflation, salaries increased by 4.7 per cent, year-on-year in Q3 2023, their fastest rate since the BCM began and the highest increase outside Scotland.
This is likely due in part to the prevalence of IT and communications in the region, though companies in the South West expect salary growth to moderate in the year ahead, to 3.0 per cent.
Businesses faced a number of challenges, some of which have worsened over the past quarter. Concerns over late payments have surged and are higher in the South West than the rest of the UK, cited by 29 per cent of respondents as a growing issue. This may partly reflect issues with late payments in IT and communications, a prominent sector in the region.
Regulatory requirements were the most widespread growing concern, cited by a third of the region’s businesses, while staff turnover was reported as a rising challenge by a quarter of respondents.
The workforce in the South West has expanded by 2.2 per cent in the year to Q3 2023, although this increase is expected to slow over the next 12 months to 1.9 per cent, broadly in line with the predicted UK average.
Although businesses are facing the highest input costs and salary payments since the survey began in 2004, annual profits growth stood at 3.6 per cent in the quarter, with a similar performance expected in the year ahead.
Beverly Waters, ICAEW regional director, South and South West, said: "It is disappointing to see that business confidence in the South West has dropped into negative territory amid challenges from persistent inflation, high interest rates and late payments.
“Nevertheless, domestic sales growth has remained healthy for our businesses and without this confidence would likely have fallen even further.”
Nationally, business confidence remains lower than the pre-pandemic average but still positive amid a backdrop of high inflation and interest rates and record wage pressures, with sentiment at 6.1 on the index.