Business confidence in the South West has plummeted to its lowest level in six months, according to a new survey by Lloyds Bank Commercial Banking. The region’s firms reported lower confidence in their own prospects and the UK economy, amid rising costs and supply chain disruptions.
Business Barometer shows sharp decline in confidence
The monthly Business Barometer, which surveys 1,200 businesses across the UK, provides early signals about economic trends both regionally and nationwide. The latest survey, conducted in September 2023, showed that business confidence in the South West fell 25 points to 21 per cent, the lowest reading since March 2023.
The decline was driven by a drop in both firms’ outlook on their own trading prospects, down 23 points to 26 per cent, and their optimism in the economy, down 27 points to 16 per cent. The South West was one of the worst-performing regions in the UK, along with London, which also saw a 25-point fall in confidence.
The national average business confidence also fell five points to 36 per cent, but remained above the long-term average of 29 per cent. The most confident regions were the North East (51 per cent), Yorkshire and the Humber (48 per cent), and Scotland (47 per cent).
Rising costs and supply chain disruptions weigh on businesses
The survey revealed that South West businesses faced significant challenges from rising costs and supply chain disruptions. A net balance of 64 per cent of firms reported higher operating costs compared to a year ago, up from 59 per cent in August. The main drivers of cost inflation were raw materials (cited by 55 per cent of firms), wages (49 per cent), and transport (46 per cent).
Moreover, a net balance of 40 per cent of firms reported difficulties in sourcing raw materials or components, up from 35 per cent in August. The main reasons for supply chain issues were shortages of labour (cited by 43 per cent of firms), delays at ports or borders (40 per cent), and reduced availability of suppliers (38 per cent).
These challenges have affected firms’ hiring intentions and investment plans. A net balance of 10 per cent of businesses in the region expect to increase staff levels over the next year, down 25 points on last month. A net balance of 18 per cent of firms plan to increase capital expenditure over the next year, down nine points on last month.
Businesses look for growth opportunities amid uncertainty
Despite the fall in confidence, South West businesses identified their top target areas for growth in the next six months as evolving their products and services (40 per cent), investing in their teams (31 per cent), and diversifying into new markets (21 per cent).
Amanda Dorel, regional director for the South West at Lloyds Bank Commercial Banking, said: “Despite a drop in confidence for South West businesses, it is encouraging to see firms looking within their own operations for growth opportunities. It’s fantastic that many firms are exploring their product and service offering too as they gear up for a busy final quarter of the year.”
“As consumer confidence improves, businesses in the region will be looking to capitalise on the opportunities that an increase in spending could bring their way. Those who keep a close eye on margins, and manage their working capital effectively will be best placed to take advantage of these opportunities.”
Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: “While the gains in business confidence we saw in August have not been maintained, it’s important to see the wider trend clearly reflected in the data which paints a very different picture to this time 12 months ago, when the economy was in significant difficulties.”
“Interest rate rises and cost pressures are still felt by many and we await to see the impact of the latest 50 basis point rise in base rate. Meanwhile, expectations for average pay growth, although down slightly this month, appear to have picked up compared with the start of the year and remain elevated relative to pre-pandemic levels.”
