The latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) shows a small increase in business confidence in the West Midlands, following four consecutive quarters of decline.
Firms in the West Midlands report a continued improvement in key financial performance indicators this quarter. Average turnover is 4.0% higher than a year ago, while gross profits and sales volumes are 4.5% and 3.7% higher respectively. The rate of growth has also strengthened compared to last quarter. In the 12 months to Q1 2010 annual turnover, gross profit and sales volume were reported to have expanded by 2.4%, 2.1% and 1.9% respectively.
Reported export growth also increased this quarter to 6.4%. This is up from 3.7% in the previous quarter and is the strongest rate of growth reported for exports since Q2 2008. Manufacturers in the region are likely to be benefiting from the weak value of sterling compared with before the economic downturn, making UK exports more price-competitive in world markets.
This quarter businesses in the West Midlands report their number of employees to be on average 0.2% higher than 12 months ago. This is the first time stated employment growth has been positive since the fourth quarter of 2008, and is indicative of a gradual improvement in the private sector labour market.
This is encouraging for the regional economy in general, as local authorities will soon begin to shed jobs as part of central government’s austerity drive. Birmingham City Council is currently planning to cut its 19,000-strong workforce by a third over the next four years – implying over 6,000 job losses.
There are also signs that businesses are beginning to invest more in their existing staff. This quarter staff development budgets in the West Midlands were on average 0.9% higher than 12 months ago. This is the first time annual growth in staff development budgets has been positive since the first quarter of 2009.
However, the cost of inputs continues to grow for businesses in the West Midlands. They report input prices 2.4% up on 12 months ago. Manufacturing is particularly important to the West Midlands economy, and rising global commodity prices are creating a challenging environment, with manufacturers facing a trade-off between keeping their prices constant to retain sales volumes or raising prices to protect profit margins. Firms in the region report selling prices this quarter to be only 0.7% higher than 12 months ago, suggesting they are seeing their margins squeezed.
Nigel Hastilow, ICAEW West Midlands Regional Director, said: “This quarter’s confidence index shows that businesses in the region are more optimistic about the future and this is reflected in their forecasts for turnover and profit growth. They are however wary of the reality that the recovery is going to be slow. As a result, there is greater caution over making long term commitments and investment. More significantly, many companies recognise that the heady days of pre-recession growth are a thing of the past and are not likely to be seen again for some time.”
For further information please go to icaew.com/bcm