Confidence levels among firms in Bath and the West are tumbling as the outlook for 2012 deteriorates further, two gloomy surveys showed this week.
Manufacturers, who have generally experienced good trading conditions this year, expect output and orders to decline next year while overall business confidence is falling on fears of a double-dip recession.
The downbeat picture emerges from surveys carried out in the region by EEF, the manufacturers’ organisation, in associated with accountants BDO, and the ICAEW (Institute of Chartered Accountants in England and Wales) with accountants Grant Thornton.
Both surveys urged the government to take urgent action to prevent the economy sliding back into recession, with extra help for struggling small firms.
The EEF/BDO report shows that output and orders for the region’s manufacturers continued to show positive trends (up 8% and 4%) over the past three months, although the rate of growth for output slowed.
And while employment levels improved over the previous quarter (up 25%), firms are predicting this will stall over the next three months. Businesses in the motor vehicle and mechanical equipment segments of the industry experienced a strong quarter although basic metal, rubber and plastics manufacturers and electronics firms reported negative output and orders balances.
Looking ahead, the aerospace industry is expecting strong demand into next year.
However, looking forward prospects are gloomy and the EEF has downgraded its forecast for UK manufacturing growth for 2012 from 2.2% to just 0.9%.
EEF South West region director Paul Knight said: “Manufacturing has been a key pillar in the recovery so far and it looks like the sector will still end the year on the up with positive output and orders responses posted over the past quarter. However, short-term confidence has all but fallen away.
“The signs of caution that had been emerging through the second half of this year have clearly become more entrenched as global growth concerns have escalated. There are not only question marks over wider manufacturing prospects at the beginning of 2012, but also the exports and investment needed to underpin sustainable growth.”
BDO’s manufacturing partner at its Bristol office Jim Brown added: “Although exports have maintained a relatively strong performance in the quarter the continuing problems within Europe, which is by far our biggest export market, are clearly having an effect and generally increasing a feeling of nervousness and lack of confidence.
“However, despite this gloom manufacturing looks set to perform well in relation to other parts of the UK economy in 2012 and we would strongly encourage the government to increase the momentum of support for the sector in order to help rebalance and boost the economy. It seems clear that manufacturing has to be at the centre of the government’s future growth plans.”
It is a similar picture at the ICAEW/Grant Thornton UK Business Confidence Monitor (BCM), which shows confidence among South West firms falling to its lowest level for two-and-a-half years, reaching a new low of minus 9.4 from a score of plus 4.4 last quarter.
However, this is against a backdrop over the past 12 months of continued growth in turnover, gross profits and sales volumes while capital investment growth has also been on an upward trajectory. There is further positive news with businesses reporting the fastest growth in headcount since the third quarter of 2008, but increasing numbers also say they are concerned about the burden of red tape and regulatory requirements.
ICAEW regional director Jon Blake said: “In the first nine months of the year, businesses have played their part in supporting economic growth. Many are proud of their success against a backdrop of a very slow and protracted recovery. Yet they are becoming increasingly worried about the immediate outlook and the risk of a double dip recession. The combination of credit easing and other specific measures could be a lifeline to businesses, particularly SMEs (small to medium-sized enterprises) who are currently struggling. Government needs to rapidly change the mood music that the business community clearly feels.”
Grant Thornton senior practice leader in Bristol Nigel Morrison added: “This survey reveals what we have experienced for over 18 months now; a general lack of confidence which has a debilitating effect on activity levels.
“There are many businesses in the South West who are doing very well and taking advantage of niche positions or favourable export markets, but they are in the minority. It remains hard work for the vast majority and 2012 is likely to remain very challenging.
“The measures to stimulate growth which were announced in the Autumn Statement are very welcome but may not impact quickly enough to prevent the UK technically slipping back into recession by April 2012, when the Q1 GDP statistics are released.”
The key findings of the latest South West BCM are:
Growth remains below pre-recession levels
Businesses in the South West have seen a generally upward trend for growth since Q3 2010. Turnover has grown by 5.5% on average over the last 12 months, while gross profits and sales volumes have grown by 3.0% and 3.5% respectively. However, while relatively robust compared with the recent past, annual growth in these metrics remains below pre-recession levels, suggesting the economy in the region continues to suffer from the aftershocks of the financial crisis.
Reported capital investment growth in the region has also been on an upward trend recently, growing over the 12 months to Q4 2011 by 4% compared to a decline of 0.5% over the year to Q4 2010. However, in line with falling confidence, expectations for future capital investment growth are now subdued. Firms anticipate only 1.1% growth over the coming year.
South West labour market remains fragile
This quarter, businesses in the South West report staff headcount as being 2.3% higher than 12 months ago, the fastest reported growth since Q3 2008. However, firms expect more modest growth in employment over the next year, of 1%. Underlying fragility in the South West labour market is also indicated by the fact that just 7.0 per cent of businesses report staff turnover to be a greater challenge than 12 months ago. This proportion has been on a downward trend since Q3 2010 when it stood at 17%.
Firms in the region also report total salaries just 1.3% higher now than 12 months ago. Before the recession, they typically planned on around 3% annual growth in total salaries. Weak salary growth is projected to continue in 2012, with businesses in the South West expecting total salaries to grow by just 1.2% over the next 12 months. With consumer price (CPI) inflation of 5% in October, the spending power of employees in the region will be severely eroded.
Regulation remains an issue
This quarter, half (50%) of businesses in the South West report regulatory requirements to be a greater challenge than 12 months ago, up from 42% in Q3 2011 and 37 per cent in the same quarter a year ago. Overall, this suggests that a significant number of businesses in the region are still to be convinced about government measures to cut red tape.
However, despite concerns about excessive regulation, just 2% of firms in the South West report government support for business to be a greater challenge than 12 months ago, down from 12% in Q4 2010.
