Confidence on the rise for SW businesses

A new report on the UK economy reveals that whilst business confidence continues to bump along the rails, the South West region is showing the greatest recovery in sentiment after the post-Brexit shockwave.

Top 40 accountants Bishop Fleming cited the recent report by the Institute of Chartered Accountants of England & Wales (ICAEW) as evidence that although uncertainty persists in the business community over what the UK's future will look like outside the European Union, the Westcountry is bristling with more confidence than the rest of the country.

The ICAEW's "UK Business Confidence Monitor" for the fourth quarter of 2016, one of the largest and most comprehensive snapshots of the UK economy, indicates that confidence remains weak across the rest of the country.

But the South West is leading the way in feeling more optimistic about the future, and in particular confidence amongst small and medium-sized businesses (SMEs) is holding up far more strongly than for larger companies.

Bishop Fleming partner, Andrew Sandiford, agreed with the report's conclusions. He remarked: "There is certainly a greater optimism among our SME clients, albeit not at the levels we have seen in the past; the Brexit vote has subdued confidence."

Whilst sales volume for the whole of the UK is growing at around 3.7% year on year, this is down on 2015 when it was around 5%. The report expects exports to grow next year, but only modestly.

Mr Sandiford commented: "Export growth has to be a key driver for the economy next year, with a falling pound making our goods and services more competitively priced for overseas buyers."

However, the Bishop Fleming partner was concerned about the report's findings that a growing proportion of companies are working below capacity, reflecting sluggish growth in sales across much of the economy.

He added: "Productivity also has to be a key focus for our industries. If we are not working at higher capacity, we are not making efficient use of our resources and we will lose out to other, more competitive economies."

The report highlights rising energy prices and a weaker sterling as pushing up input price inflation, further squeezing profit margins.

Mr Sandiford explained: "These are two big costs for industry, and another is wage costs as a result of the National Living Wage and pension auto-enrolment. We can also expect to see further cost pressure on larger businesses next year when the new Apprenticeship Levy kicks into play. If sales growth remains low, this limits the ability of companies to raise their selling prices to cover their rising costs."

Another concern raised in the report is that with slow sales, depressed profits, and high degrees of uncertainty, companies are holding off on new capital spending.

Mr Sandiford made the point that with borrowing costs currently so low and with plenty of finance available in the market, now was a good time to make new investments in equipment and skills training that will boost future productivity.

He added: "We need to build on the optimism growing in the South West and take it into the New Year to grasp the many opportunities that abound. This should be a clarion call to our region's entrepreneurs to be brave, seize the opportunities and go for growth."