Business confidence increases in SW

Overall business confidence has risen in the South West in the last six months, underpinned by companies’ expectations of an improvement in exports as well as an anticipated increase in investment levels, according to the latest Business in Britain report from Lloyds Bank.

The twice-yearly report, now in its 23rd year, gathers the views of 1,500 UK companies, predominantly small to medium sized businesses, and tracks overall business confidence, which is based on the balance of firms expecting an increase in sales, orders and profits over the next six months.

Since the last report in January 2015, business confidence in the South West has grown by six points to 49 per cent, largely driven by firms’ expectations of profits and orders, reflecting a more bullish growth outlook for the rest of the year.

Although the latest confidence reading is down from the survey’s high of 58 per cent 12 months ago, it remains well above the long-term national average of 23 per cent.

The survey shows that, in the last six months, the number of South West exporters that experienced a decline in total exports was just five per cent, compared to 43 per cent that saw exports grow. In the next six months, 52 per cent of firms expect exports to grow, while just five per cent expect them to fall.

Looking ahead, 28 per cent of firms currently exporting in the South West said that weaker UK demand poses the greatest threat to their business in the next six months, which could explain why firms expect to increase their sales in global markets.

Despite the ongoing uncertainties in the Eurozone, the resurgence in European exports looks set to continue as the net balance of South West exporters expecting an increase in trade with Europe in the next six months has grown by 26 points to 43 per cent.

David Beaumont, area director for SME Banking in the South West, Lloyds Banking Group said: “The South West is now one of the most business-confident areas of the UK and the results of the report reinforces the region’s status as a thriving commercial centre and a hub of entrepreneurialism.

“While industries such as tourism remain strong economic drivers within the area, considering the rate of growth in the global market place, it’s important that businesses look to foreign markets to secure additional growth opportunities.

“For that reason, it’s encouraging to see that so many businesses in the South West are planning to increase export sales to safeguard against any decline in domestic demand.”

The number of South West companies reporting difficulties in recruiting skilled labour in the past six months has increased from 17 per cent to 31 per cent. Meanwhile the proportion of businesses reporting that they are operating at full capacity has risen by eight points to 47 per cent.

Both these developments could put pressure on firms to raise prices in the coming months.

Overall, the net balance of companies planning to increase their staffing levels in the next six months fell by twelve points to 34 per cent, but remains at a strong level, which bodes well for further job creation in the second half of the year.

Trevor Williams, chief economist, Lloyds Bank Commercial Banking, said: “The fact that more UK companies are reporting difficulties in recruiting skilled labour suggests that spare capacity in the labour market is closing, increasing the likelihood of further wage rises. Without productivity improvements, or price inflation exerting some moderating influence on wages, firms may have to respond by eventually raising the price of their goods and services.”

South West firms’ investment spending trends are also anticipated to improve in the next six months as the net balance of businesses planning to increase capital expenditure has risen by six points, from 15 per cent to 21 per cent.

When asked how much they plan to invest in the next six months, a third (31 per cent) of South West businesses said nothing while at the higher end of the scale, six per cent of firms plan to invest more than £1million.

While overall business confidence has remained unchanged, sentiment across manufacturing, construction and hospitality & leisure have all seen improvements.

The biggest increase is in the UK construction sector in which confidence levels have risen by 14 points to 50 per cent. This is reflected by a rise in confidence for incoming orders for the remainder of the year, as the net balance rose eight points to 56 per cent having fallen 22 points in January. Similarly the net balance of construction firms anticipating an increase in their capital outlays rebounded strongly, with an 18 point gain to 24 per cent.

Confidence scores across the remaining sectors were broadly similar to the start of the year apart from transport & communications, which decreased by five points to 34 per cent. This was driven by a fall in the sector's expectation of profits, which declined by nine points to 32 per cent.

David Beaumont continued: “Positively, businesses remain eager to invest in infrastructure and staff for the long term and while certain challenges remain on the horizon - such as uncertainty in the Eurozone, a potential rise in interest rates and inflationary pressures – the overall outlook is strong for the UK, particularly in the construction and manufacturing sectors.

“We are playing our part to help Britain prosper by helping businesses to start up, expand and trade overseas – with our new UK Trade and Investment partnership forming a central part of this plan. Businesses have good reasons to remain confident as the long-term health of the UK continues to improve.”

Regionally,  with the South West, the South East, East Midlands & East regions recorded the largest confidence increases of six points each, with all posting balances above the national average of 43 per cent. However confidence has slipped back in six of the eleven regions. These falls were marginal except in Wales which has seen a decrease of 14 points to 32 per cent.

The net balance of businesses that anticipate an increase in headcount over the next six months rose in the South East, East Midlands & East and Yorkshire & the Humber, but fell elsewhere with the exception of the West Midlands where it was unchanged.

Declining sentiment for sales and orders in Wales has dented businesses’ confidence in their ability to hire more staff. The net balance of Welsh firms expecting to step up recruitment has fallen 21 points to six per cent and in the North East there was a corresponding 14 point decline taking the balance to minus two per cent.