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ICAEW Business Confidence Monitor (BCM): South West

Q4 2020: Business confidence firmly negative as concerns over demand become widespread

  • The South West’s Confidence Index stands at -22.2 in Q4 2020, below the UK average
  • Businesses report declining sales, and in turn are reducing their employee numbers sharply
  • A considerably higher proportion of businesses cite customer demand and late payments as growing issues compared to a year ago
  • In this difficult environment, businesses are also cutting all forms of investment spending
  • And while sales growth is expected to improve next year, companies are being cautious in their investment plans 

Business Confidence in South West

Businesses continue to face significant challenges amid the coronavirus pandemic. The ongoing uncertainty stemming from this is weighing on company sentiment. At -22.2, business confidence in the South West in Q4 2020 is firmly in negative territory. 

Domestic sales and exports growth

Businesses in the South West report declining sales in Q4 2020. Indeed, exports are down by -1.6% year-on-year in Q4 2020, a steeper contraction than nationally. That said, a fall in domestic sales of -0.9%, is less severe than the UK average (-2.2%), possibly due to the region’s relatively large hospitality sector benefitting from increased domestic tourism in the summer months of 2020, as lockdown measures were eased. 

Employment growth

Nonetheless, sales performance is well below historical norms for the region. As a result, businesses in the South West are reducing their headcounts. In the year to Q4 2020, employee numbers are down by -0.9%, a sharper fall than nationally (-0.5%). This decline in employment could also have wider implications on the demand conditions faced by businesses in the region.

Business challenges

Reflecting these difficult conditions, customer demand is now the most widespread growing concern for businesses in the region. 49% of companies cite this in Q4 2020, almost 10 percentage points above the rate of a year ago. Lockdowns and restrictions, both domestically and internationally, have also significantly impacted the way in which companies operate and service their markets. The region is more geographically isolated than most, which may be why transport problems are a growing source of difficulty for 26% of businesses in the region, among the highest rates across all of the UK. 

Also symptomatic of the challenging financial environment, late payments are now a more pressing issue for 41% of businesses, well above the UK average of 34%.

Investment growth

Businesses are cutting all forms of investment spending. The South West is the only UK region where Research & Development (R&D) budgets are falling. And the sharper than average reduction in employee numbers may help to explain why staff development spending is contracting at the fastest rate across the UK. 

Prospects for the next 12 months

Companies in the South West do foresee a rebound in domestic sales (3.8%) in the year ahead, although growth projections for exports (1.4%) are more modest. The expected upturn in sales performance is expected to support a 0.5% rise in employee numbers, although this is the joint weakest expectation in just over six years. In terms of investment, businesses plan to increase all forms of spending over the next 12 months. However, these anticipated rises are below historical projections, with growth expected to remain under 1% for all forms of investment. That said, the second lockdown in England poses a significant downside risk to the recovery of company performance.