Business confidence in the South West fell 38 points during March to eight per cent, according to the latest Business Barometer from Lloyds Bank Commercial Banking.
Companies in the region reported lower confidence in their own business prospects month-on-month, down 26 points at 14 per cent. When taken alongside their optimism in the economy, down 48 points to three per cent, this gives a headline confidence reading of eight per cent.
Despite the drop in confidence, South West businesses reported plans to target new growth opportunities in the next six months, including evolving their offering (32 per cent), diversifying into new markets (27 per cent) and investing in their teams (22 per cent).
The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.
A net balance of seven per cent of South West businesses expect to increase staff levels over the next year, down 32 points on last month.
Overall UK business confidence dropped 11 points during March, from 44 per cent to 33 per cent. Firms’ outlook on their future trading prospects (down from 45 per cent to 34 per cent) and optimism in the economy (down from 43 per cent to 32 per cent) both also fell by 11 points on February’s reading. The net balance of businesses planning to create new jobs decreased slightly, by six points to 32 per cent.
Every UK region and nation reported positive confidence readings in March, with the exception of Wales which saw confidence drop from 29 per cent to -5 per cent. Only London (up 13 points to 60 per cent), Yorkshire and the Humber (up six points to 57 per cent) and the North West (up one point to 45 per cent) reported a higher reading than last month, with London now the most optimistic region overall.
Amanda Dorel, regional director for the South West at Lloyds Bank Commercial Banking, said: “While the overall level of confidence remains positive, it’s clear that business confidence has taken a hit in recent weeks. The impact of Russia’s invasion of Ukraine and ongoing inflationary challenges are clearly weighing heavy on firms.
“While it’s difficult to say what might happen in the coming months, we can at least hope that businesses enjoy a busy summer trading period, with the South West’s hospitality and leisure sector in particularly enjoying another year of staycations. We’ll remain by the side of firms to help them with whatever challenges come their way as they focus on their ambitions for the year ahead.”
From a sector perspective the impact of the war in Ukraine appears to have had the greatest impact on manufacturing and retail firms. Both sectors saw drops in confidence of 19 per cent from February’s highs (to 35 per cent and 28 per cent respectively). From a manufacturing perspective confidence levels are now at their lowest since last summer, while retail has fallen to a one-year low.
In the other sectors, services dropped by six points (32 per cent) while construction dropped eight points to 43 per cent, but remained higher than at the start of the year.
Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “March’s data shows UK businesses are facing significant challenges from the impact of Russia’s invasion of Ukraine in increasing economic uncertainty and ongoing inflationary pressures. Following encouraging improvements at the start of the year, March’s fall in confidence is therefore disappointing, but not surprising.
“There are positives with the fact that confidence remains above the long-term average and it appears for now that growth will moderate. But it is difficult to gauge what the full impact will be and therefore businesses have become more cautious.”