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Economic Insight

ICAEW Business Confidence Monitor (BCM): South West

Q4 2022: Business sentiment in the South West weakens considerably

The latest Business Confidence Monitor (BCM) shows business confidence falling further across the UK as difficult economic conditions combine with political turmoil. The latter has seriously unsettled financial markets, and although some stability has been restored, recent events are likely to result in higher interest rates, taxes and government borrowing, and lower government spending, than previously expected. This has adversely affected business sentiment.

The survey results are based on telephone interviews among ICAEW Chartered Accountants that took place between 25 July and 14 October 2022.

  • The South West’s Business Confidence Index is one of the weakest across the UK.
  • This is despite businesses reporting healthier sales performances than most other regions. The outlook for exports is one of the strongest across the UK.
  • The weakening of business confidence partly reflects the ongoing supply-side challenges businesses are having to deal with.
  • The availability of non-management skills and staff turnover are the most prominent growing challenges in the region, which helps to explain why businesses are increasing average total salaries sharply.
  • The proportion of companies reporting late payments and access to capital as growing challenges is trending upwards as financial conditions become tighter.
  • In addition to increased labour costs, input prices are rising sharply. As a result, businesses are lifting selling prices by a record rate.
  • Companies have increased their investment spending but plan to moderate growth across all forms over the next 12 months.

Business confidence in the South West

The Business Confidence Index for the South West continued its downward trend and now stands at -20.8, placing it among the more downbeat regions across the UK.

Domestic sales and exports growth

The weakness in business sentiment is unlikely to be stemming from sales performance over the past year. Indeed, companies in the South West are among the best performers with respect to both domestic sales and exports growth. The former increased by 5.6%, year-on-year, in Q4 2022. Export sales grew by 4.8%, with only businesses in the West Midlands achieving a stronger outturn during this period. Over the coming year, domestic sales are expected to rise at the slightly slower pace of 4.3%. However, exports are projected to expand at the faster pace of 4.7%. Again, only companies in the West Midlands have a stronger outlook for exports. 

Business challenges

Labour market challenges remain prominent in the South West and are clearly weighing on businesses confidence. The availability of non-management skills remains the most widespread challenge in the region, with 45% of businesses citing this issue as a source of growing concern. The proportion of companies reporting staff turnover as an issue also remains elevated at 36%, which is almost twice the historical average for the South West. That said, the percentage of businesses citing the availability of skills and staff turnover as rising challenges does now appear to be easing off, after surging dramatically throughout 2021 and early 2022.

In addition to labour market concerns, businesses in the South West also face a range of other challenges. Some of these have historically been quite minor issues but are now coming to the fore. An example of this is availability of government support for business. In Q4 2022, 15% of businesses cited this, an historical high for the region and also the highest rate across the UK. Reflecting the challenging financial conditions that businesses and customers are facing, late payments and access to capital are also both becoming more prominent issues. The former is a growing challenge for 23% of companies, while the rate for the latter is 16%, with both proportions well above their historical averages. 

Labour market

In response to ongoing recruitment and retention issues, businesses in the South West have increased average total salaries by 3.5% over the past 12 months. A further rise of 3.9% is expected over the year ahead which, if achieved, would be the fastest growth since Q1 2006. The rise in wages also partly reflects the quickly expanding workforce. After increasing staff levels by 2.8%, year-on-year, companies plan a further 2.6% rise over the next 12 months, which would outpace most of the UK, except London.

Input and selling prices

In addition to rising labour costs, businesses face markedly higher input prices because of continued supply-side disruptions and heightened global energy prices. Input price inflation reached 5.5% this quarter, the highest rate in the region since the start of the survey in 2004. Businesses expect a further 5.9% increase over the year ahead, which would be the fastest rise across the UK.

In response to these cost pressures, companies are also increasing their selling prices. These were up 3.6%, year-on-year, in Q4 2022. This is the region’s joint highest rate, along with the previous quarter, since the survey began. A further 3.8% increase is expected over the next 12 months with only businesses in the West Midlands planning to lift prices at a faster pace.  

The net effect of this combination of higher prices, costs and sales has been that growth in profits reached 3.5% in the year to Q4 2022. The same increase is expected for the year ahead.


Investment rates have improved since the height of the pandemic, with both capital spending and Research & Development (R&D) budgets rising faster than the historical averages for the region. In the year to Q4 2022, capital investment increased by 2.5%, while R&D budgets saw a rise of 2.3%. However, the outlook is more subdued. Reflecting greater uncertainty about economic conditions, growth in both capital investment and R&D budgets is expected to slow. Spending on capital assets will rise by just 1.5% over the next 12 months, while companies plan a 2.1% increase in R&D budgets.