Business confidence in region takes a hit

BUSINESS confidence has fallen slightly in the North West in the last six months, despite companies’ January expectations of an improvement in exports as well as an anticipated increase in investment levels, according to the latest Business in Britain report from Lloyds Bank.

The twice-yearly report, now in its 23rd year, gathers the views of 1,500 UK companies, predominantly small to medium sized businesses, and tracks overall business confidence, which is based on the balance of firms expecting an increase in sales, orders and profits over the next six months.

Since the last report in January, business confidence in the region has fallen by 5% to 37%, though firms’ expectations for second-half profits and orders reflect a more bullish growth outlook for the rest of the year.

Although the latest confidence reading is down from the survey’s high of 45% 12 months ago, it remains well above the long-term national average of 23%.

The survey shows that, in the last six months, the number of North West exporters that experienced a decline in total exports was just 13%, compared to 45% whicht saw exports grow.

Firms said the biggest threat to their business in the next six months is weakening UK demand, cited by 28% of respondents, which could explain why they plan to increase their sales in global markets.

Despite the ongoing uncertainties in the Eurozone, the resurgence in European exports looks set to continue. The net balance of North West exporters expecting an increase in trade with Europe in the next six months has grown by 20 points to 36 % January.

Area director for SME banking in the North West for Lloyds Bank Commercial Banking Martyn Kendrick said:  “Business confidence has remained relatively steady in the North West, with encouraging expectations for sales, orders and profits for the rest of the year.

“This has been underlined by the bounce-back in exports to Europe as well as companies’ intentions to grow their presence further on the international stage this year.”

The number of  companies reporting difficulties in recruiting skilled labour in the past six months stayed steady at 38% the same as reported six months ago. Meanwhile the proportion of businesses reporting that they are operating at full capacity was up five points at 50%/.

Both these developments could put pressure on firms to raise prices in the coming months.

Overall, the number of companies planning to increase their staffing levels in the next six months held firm at 29%, which bodes well for further job creation in the second half of the year.

Chief economist for Lloyds Bank Commercial Banking Trevor Williams said: “The fact that more UK companies are reporting difficulties in recruiting skilled labour suggests that spare capacity in the labour market is closing, increasing the likelihood of further wage rises. Without productivity improvements, or price inflation exerting some moderating influence on wages, firms may have to respond by eventually raising the price of their goods and services.”