Confidence among South West firms remains the most fragile of any UK region, according to two new surveys, with weak economic growth and skills shortages among the biggest challenges.
Business optimism in the region fell six percentage points during May according to the latest Business Barometer from Lloyds Bank Commercial Banking.
Firms also reported lower confidence in their own prospects month-on-month, down one point to 42% while their view of the country’s economic prospects tumbled by 11 points to 17%.
When taken together, these indicators give a headline confidence reading of 30% – making the South West, along with the West Midlands and the South East, the most pessimistic part of the country.
Meanwhile, the latest quarterly report by the FSB (Federation of Small Businesses) shows confidence levels among the South West’s small firms crept back up during the first three months of this year from the near record levels of pessimism at the end of 2022.
While they are still in negative territory – at minus-23 points – there has been a noticeable shift upwards with the confidence deficit being more than halved from the minus-62 last December. 
In addition, twice as many small firms (14%) said they were likely to take on staff rather than decrease their headcount in the coming months while nearly four in 10 said they were aiming to grow their businesses either rapidly or moderately in the current quarter.
However, despite these positive signs, the South West still has the overall lowest confidence levels in the country and investment ambitions are at a low ebb.
FSB regional policy chair Craig Carey-Clinch, pictured, said the more hopeful signs overall should be cautiously welcomed.
“We are still a long way from where we want to be and our amazing South West businesses still have a myriad of issues to deal with but let’s hope this upward turn in regional attitudes are at least the foundation for a more optimistic outlook for the year ahead,” he said.
But he pointed out that revenue among South West small firms levels lagged behind the rest of the UK and growth aspirations were slightly below even last quarter’s poor figures.
“Frustratingly, the South West remains the least confident region in the country. That is something that is becoming the norm in recent reports and even though it flies in the face of the perceptions many of us have that the South West is open and enthusiastic to do business the sooner we can get back up that regional league table the better,” he added.
According to the Lloyds Business Barometer, South West firms identified their top target areas for growth in the next six months as evolving their product or service offerings (41%), diversifying into new markets, investing in teams, and introducing new technology (all at 23%).
A net balance of 35% of businesses in the region expect to increase staff levels over the next year, up three points on last month.
Lloyds Bank Commercial Banking South West director Amanda Dorel, pictured above, said: “Despite a slight dip in confidence levels it’s encouraging to see firms looking to increase staffing levels in order to take advantage of growth opportunities.
“A combination of bank holidays and rising temperatures could be the tailwind the regions hospitality and leisure businesses need to kick start a season of strong summer trading.
“Businesses that act swiftly to manage working capital needs and keep a close eye on their margins will be best placed to capitalise on timely prospects.”
The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.
