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Business confidence in the South West surges to near-record high

Author: ICAEW

Published: 21 May 2021

Business confidence in the South West has risen to a near-record high since a quarterly survey began in 2004, despite record falls in sales in the past 12 months.

ICAEW’s Business Confidence Monitor (BCM) for Q2 2021 found that business confidence across the South West had surged to a near-record high. This was likely a result of optimism surrounding the vaccination programme, which has fuelled expectations of a sharp rebound in economic activity set to last into 2022, the chartered accountancy body said. [1]

Conditions remained difficult for businesses, though the South West could see increased levels of domestic tourism if international travel restrictions continue, which could benefit some of the region’s businesses.

Companies in the South West recorded the sharpest contraction of domestic sales since the survey after they fell by 2.7% year-on-year, while exports fell by 0.8% year-on-year.

Profits have fallen by 1.4% over the past year, while employment fell by 1.1% year-on-year, though this would likely have been higher without the Coronavirus Job Retention Scheme.

Challenges for businesses

Nearly half of those surveyed cited customer demand as a growing challenge, which was among the highest rates in the UK and is over 20 percentage points above its rate from a year ago. [2]

Meanwhile, late payments were a more pressing issue for three in 10 companies. [3] The proportion of businesses experiencing this problem has almost doubled from a year ago. [4]

Transport issues were a growing challenge for 18% of businesses in the region, up from 5% a year ago. The relative isolation of some parts of the South West may have contributed to the rise in transport problems across the region over the past 12 months.

A third of businesses cited regulatory requirements as a prominent concern, with COVID restrictions and difficulties adjusting to the new UK-EU trading relationship likely to be factors behind this.

Looking ahead

Uncertainties remain for businesses in the South West around the shape and pace that economic recovery will take. However, domestic sales are set to increase by 7.7%, the fastest rate seen since the BCM began in 2004, while exports are expected to rise by 4.4%, both sharper than the national forecast.

Employment is also set to increase by 2.4% while profits are forecast to increase by 6.7%.

Beverley Waters, ICAEW Regional Director for the South West, said:

“The rollout of the coronavirus vaccines and easing of lockdown measures have boosted confidence for businesses in the South West after more than a year of very difficult trading conditions.

“Companies in the region have told us they continue to face challenges but nevertheless it is encouraging to see our businesses more confident as they anticipate a strong rebound in 2021 which may also be supported by a rise in domestic tourism this summer.”

Notes:

  1.  Business confidence stood at +34.1 in the South West in the second quarter of 2021.
  2. 48% of companies cited customer demand as a growing challenge in Q2 2021, compared to 27% in Q2 2020.
  3. 29% of companies reported late payments as a more pressing issue in Q2 2021.
  4. 15% of businesses cited late payments as a more pressing issue in Q2 2020 a year ago.
  5. Capital spending is forecast to rise by 2.8% over the next 12 months.