South West businesses batten down hatches to weather economic storm

Businesses in the South West are battening down the hatches as borrowing gets more difficult and late payments from customers become more of a problem in the continuing economic slowdown, according to the latest UK Business Confidence Monitor (BCM) from the Institute of Chartered Accountants in England & Wales (ICAEW).

The latest BCM Confidence Index for the South West shows another drop in business confidence from a record low of -15.3 last quarter to -29.6.

Jon Blake, the ICAEW’s South West regional director, said: “The survey paints a stark picture of the challenging business environment in the region. We are seeing a new realism among businesses about the need to weather the current economic conditions with staff and capital investment growth both expected to weaken in the coming 12 months.”

The BCM survey of senior business professionals in the South West shows that capital investment growth is expected to fall from a reported 3.3% over the last year to 0.9% in the coming 12 months.

The growth in employee numbers is expected to slow from 2.8% to 1.3%.

Low confidence in the region is partly due to a rapidly cooling housing market. Housing transactions in the South West are 42% down on 2007. Tourism is also feeling the pinch with hotels and catering businesses expecting to see a fall in leisure spending.

South West businesses expect turnover growth to fall from a robust 7.3% seen in the year to date to 4.5% in the coming year and profit growth to fall from 5.2% to 3.6%. Input prices are expected to increase by 4% over the next year following a similar rise reported in the last 12 months. But there is a gleam of light, thanks to the competitive value of sterling. Export growth in the South West was reported at 7.3% over the last year compared to a UK average of 4.5%, and is set to be strong for the region at 7% over the next 12 months.

Restricted lending from financial institutions is now seen as a challenge for more South West businesses. Last quarter, just one in ten firms reported access to capital as a greater challenge to business performance compared to 12 months earlier. This quarter the proportion has increased to over a quarter.

More South West firms now also report late payment from customers as greater a challenge to their performance.

Jon Blake added: “In the more difficult economic environment, businesses need to monitor cash flow with vigilance.

“The slowdown is likely to be at its worst towards the end of 2008 and into early 2009. We expect inflation to start falling back from early 2009, allowing the Bank of England to cut interest rates. Towards the end of 2009, providing wage inflation stays low, economic activity looks likely to pick up.”

To access the survey in full go to www.icaew.com/bcm.