Gloomy economic forecasts fail to dampen mood for South West businesses - Grant Thornton

Business leaders in the South West are optimistic about their growth opportunities for the year ahead despite gloomy economic forecasts, according to accountancy giant Grant Thornton.

According to data from Grant Thornton UK LLP’s latest Business Outlook Tracker, mid-market optimism has rebounded, with the South West’s business leaders often being significantly more upbeat than the national average:

• Ninety four per cent are optimistic about revenue growth expectations. This is nine percentage points (pp) higher than the national average and marks a rise of +21pp since October
• Profit growth expectations have grown by +10pp since October. Seventy seven per cent of the region’s businesses are optimistic about this metric, which is 6pp above the national average.

The results indicate that businesses are confident they can weather this economic downturn. Optimism regarding the funding position of South West companies has risen +16pp since October.

Over two thirds of respondents (70 per cent) are also confident that they have sufficient working capital to manage the impact of a recession for six months or more.

The top concerns for the region’s mid-market heading into 2023 are the rising tax burden, rising interest rates and high energy costs, all of which they feel sufficiently prepared to manage.

The mid-market continues to struggle to attract and retain talent, with 67 per cent of respondents experiencing unusually high attrition rates. Over half (53 per cent) are also struggling to recruit for open roles.

But employers in the South West are pulling out all the stops in a bid to remain competitive. Almost two thirds (63 per cent) are planning to offer their people a pay rise in line with, or above, inflation, while 89 per cent are also reviewing their employee benefits package to make it more competitive. Over a third (34 per cent) are also planning to invest more in skills development over the next six months.

The research also finds that the mid-market is starting to look for ways to reduce its reliance on people. Over three quarters (77 per cent) agree that they are increasing their use of automation and digital.

Jonathan Riley, practice leader for Grant Thornton UK LLP in the South West, said: “It is surprising that the market’s positivity levels are at odds with the forecasts from the Bank of England and the government. Optimism levels have rebounded significantly since October, when the shock and uncertainty from the mini-Budget plummeted mid-market optimism to some of the lowest recorded in our Tracker. The certainty provided since seems to have reassured the market.

“Even though we know the economy and operating conditions are not likely to improve any time soon, it is perhaps better to have bad news over uncertainty. Certainty over the future allows businesses to work this into their forecasts and take action to soften the impact.

“While a potential recession is often in the headlines, our survey shows that the labour market remains a concern. Employers are trying to improve efficiency and productivity, while also managing cost levels, which is demonstrated by high investments in technology and people.

"It is interesting to note the focus on skills development, which shows a commitment to making staff more efficient as well as a desire to manage retention levels and costs.

“Having seen first-hand how our region responded to the challenges of recent years with determination, flexibility, enterprise and innovation, I am confident that many businesses in the South West will find a way to survive and thrive during the months ahead.

"Given the encouragingly high optimism levels, it would seem that the local market shares this confidence in its prospects for 2023.”