Business confidence falls from record level

Business confidence in the region has fallen from its record level last quarter but remains “very high by historical standards”, a survey of chartered accountants has found.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for the West Midlands found confidence at 31.8 on the quarterly index, down from a peak of 55.8 in Q3.

The high readings follow ‘enormous’ challenges faced by the region’s businesses during the pandemic, ICAEW said.

High confidence recorded for Q4 was likely related to the projections of sharp sales growth for the next year. Businesses in the West Midlands have predicted that domestic sales will grow by 5.7%, their fastest rate in six years.

And with sales set to improve, businesses plan to continue to increase their headcounts over the coming year. Salaries are also set to rise.

The pandemic had a particular impact on the West Midlands’ automotive sector. However, a boost in economic activity after COVID-19 restrictions eased meant that only the neighbouring East Midlands had a faster rate of growth in domestic sales over the past 12 months.

Exports grew year-on-year but by a slower pace than domestic sales, with post-Brexit changes likely hampering the recovery, but the rate of growth is expected to increase further over the next 12 months.

More than a third of businesses said that the availability of staff with non-management skills was a growing issue, double the historical average.

Consequently, staff turnover was a more pressing issue for 44% of businesses, the highest rate across the UK and in the region since the survey began in 2004.

Transport issues were also a major challenge for businesses, with the West Midlands’ export intensive manufacturing sector especially impacted.

Input prices grew by 2.6%, with a similar rise expected in the year ahead, a likely reflection of increased labour costs and supply-chain issues.

Nationally, business confidence weakened after hitting record-breaking levels in the previous two quarters. This fall in optimism likely reflected problems businesses have experienced, both at home and abroad, from rising costs, supply chain disruptions and recruitment challenges.

Justin Kyriakou, ICAEW Midlands regional director, said: “Although business confidence in the West Midlands has eased after the quarterly index reached record highs in the previous two quarters, prospects for the region’s firms are back on track after they struggled through the pandemic. Sales are set to increase, but despite this our firms are struggling to recruit quickly enough to cope with increased demand.

“As we emerge from the pandemic, this is a vital time for businesses and the economy. The upcoming national insurance hike, rising energy prices and the increase in unemployment, which could add pressure on the Bank of England to raise interest rates, could derail the economic recovery.”