Seventy-four senior business professionals in the West Midlands were interviewed and record a Confidence Index score of 11.6 in the Q4 2010 ICAEW/Grant Thornton UK Business Confidence Monitor (BCM). The Confidence Index for the region has weakened by 11.4 points this quarter and is now in line with the UK average. Nationally the Confidence Index stands at 11.9.
Key performance indicators strengthen over the quarter
Businesses in the West Midlands report improved financial performance over the year to Q4 2010. Profit and turnover growth are in positive territory for the second consecutive quarter after six quarters of decline. Turnover increased by 2.4% in the year to Q4 2010, from 1.3% over the year to Q3 2010. Gross profit increased by 2.1% over the year to Q4 2010, up from 1.6% last quarter.
However, reflecting the weakening outlook for businesses signalled by the decline in confidence in economic prospects, expectations for financial performance have generally softened. Over the next 12 months firms expect gross profit growth to edge up to 4.0%, but forecast turnover growth has slipped marginally to 4.1%. In general, businesses? expectations for the next year remain below pre-recession levels.
Outlook for domestic sales and exports good
After six quarters of decline, annual domestic sales growth turned positive (1.6%) in Q3 2010, and the improvement continued in Q4 2010 as firms report growth edged up to 2.3%. Business expectations are for growth to pick up further over the next 12 months with 4.3% growth forecast.
Over the year to Q4 2010 exports also increased solidly, growing by 3.7%. This is the highest rate of growth since Q1 2009 and compares to 0.8% over the 12 months to Q3 2010.
Over the coming 12 months businesses in the West Midlands expect exports to increase by 4.6%, also up from the previous quarter. Forecast export growth is currently high in the West Midlands relative to pre-recession levels. Exports are expected to contribute an increasing share of the UK?s output during the recovery. This quarter?s data suggest businesses in the West Midlands, which have a greater than average dependence on the manufacturing sector, are particularly hopeful that improved international sales will benefit their business.
Cash flow improves for West Midlands firms
The proportion of businesses reporting late payment from customers to be a greater challenge than 12 months ago continues to fall. This quarter 17% of West Midlands businesses report late payment from customers as a greater challenge to business performance, down from 25% in Q3 2010 and notably below the Q3 2009 peak of 47%. This suggests cash flow has improved as sales and profit growth have picked up.
Customer demand still a concern for businesses in the West Midlands
Over the course of the first three quarters of 2010 the proportion of West Midlands firms reporting customer demand as a greater challenge to business performance had fallen back to pre-recession levels. BCM has now found a reversal in this trend, with over half of firms in the region (53%) reporting customer demand as a greater challenge to performance than a year ago. Across the UK as a whole 44% of firms report this.
More firms complain about tax burden
The proportion of West Midlands firms reporting increased challenges stemming from government has risen steadily over the course of 2010.
This quarter nearly three in ten businesses (28%) report their tax burden as a greater challenge than a year ago. In Q4 2009 only 15% reported this trend. In addition, the proportion of businesses reporting government support for business as a greater challenge to performance than a year ago is pushing one in ten (9%). In the last quarter of 2009 only 2% of West Midlands firms reported this trend.
This is despite the coalition government?s commitment to infrastructure projects in the region. The redevelopment of New Street Station in Birmingham will go ahead, as will the extension of the Midland Metro Tramway and the high speed rail link to London.