Business confidence in the South West rose two points during January to 38%, according to the latest Business Barometer from Lloyds Bank Commercial Banking. This was the highest reading in the region since February 2022, and above the UK average of 36%.
Businesses in the South West reported lower confidence in their own prospects, down six points to 40%, but higher optimism in the wider economy, up ten points to 36%. The net balance of firms expecting to increase staff levels over the next year also rose 17 points to 43%, the highest in the UK.
The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide. The latest quarterly findings are based on the period 26 December 2022 to 22 January 2023.
Businesses in the South West Plan to Invest and Grow
Businesses in the South West identified their top areas for growth in the next six months as investing in their teams, entering new markets, and evolving their products and services. They also reported strong sales growth, both domestically and internationally, in the past year.
Domestic sales grew 5.7% year-on-year in the South West, the second-highest rate in the UK, and above the historical average of 3.1%. Businesses expect domestic sales to moderate to 4.7% in the next 12 months, but still remain above the long-term trend.
Export sales grew 2.4% year-on-year in the South West, in line with the historical average, but below the UK average of 3.2%. Businesses anticipate export sales to remain stable at 2.4% in the next 12 months, but lag behind the UK average of 3.4%.
Businesses in the South West Face Several Challenges
Despite the positive outlook, businesses in the South West also faced several challenges in the past year, and expect to face more in the coming year. The most common challenges were regulatory requirements, marketplace competition, late payments, access to capital, and bank charges.
Regulatory requirements were cited by 28% of businesses in the South West as a source of difficulty, up from 25% a year ago, and above the UK average of 26%. Marketplace competition was cited by 27% of businesses, up from 24% a year ago, and in line with the UK average.
Late payments were cited by 25% of businesses in the South West, up from 18% a year ago, and the highest in the UK. Access to capital was cited by 23% of businesses, up from 19% a year ago, and above the UK average of 21%. Bank charges were cited by 22% of businesses, up from 18% a year ago, and above the UK average of 20%.
Businesses in the South West Boost Profits and Investment
Despite the challenges, businesses in the South West also reported strong profit growth and investment in the past year, and expect to continue in the next year. Profits grew 8.2% year-on-year in the South West, the highest in the UK, and above the historical average of 6.4%. Businesses expect profits to grow 8.1% in the next 12 months, slightly below the UK average of 8.3%.
Capital investment grew 4.9% year-on-year in the South West, the highest in the UK, and above the historical average of 3.6%. Businesses expect capital investment to grow 4.4% in the next 12 months, slightly below the UK average of 4.6%.
R&D spending grew 4.6% year-on-year in the South West, the highest in the UK, and above the historical average of 3.4%. Businesses expect R&D spending to grow 4.2% in the next 12 months, slightly below the UK average of 4.4%.
Amanda Dorel, regional director for the South West at Lloyds Bank Commercial Banking, said: “It’s encouraging to see business confidence in the South West rebound in January, as firms start the new year with optimism and ambition. The South West has a diverse and resilient economy, with strengths in sectors such as tourism, manufacturing, and technology. Businesses have shown their adaptability and innovation in the past year, and are well-placed to seize the opportunities ahead.”
