SMEs hope exports will offset weak demand

SMALL firms in the West Midlands are drawing strength from overseas markets, and are predicting rising sales and improved profitability, despite the ongoing spectre of weak domestic demand, according to new data from Lloyds TSB.

In its latest Business in Britain report, John Robson, regional director for Lloyds TSB Commercial in the Midlands and North, said business confidence in the regions was growing.

“After such dramatic lows, this revival is a real sign that businesses in the West Midlands are genuinely hopeful for the future, and it is clear that many firms now see better sales and profitability on the horizon,” he said.
 
However, he said many firms were still cautious about what lay ahead, especially if demand stalled.

“Concerns about home-grown demand are unsurprisingly weighing on the minds of business owners whose success depends on domestic markets,” added Mr Robson.

“As long as businesses harbour doubts about the economic climate, they will hold back on investment spend and, while there’s enough momentum behind the recovery to prevent it faltering, it is likely to be a long haul.”
 
The quarterly report, which canvassed the views of more than 220 firms in Birmingham, the West Midlands and Staffordshire, shows that business confidence in the area is continuing the climb back from the historic lows of 2008. The Business in Britain Confidence Index, which measures firms’ outlook for sales, order book and profitability, recorded a balance of 10% in June.
 
The bank said the renewed momentum in business confidence was being driven in large part by the promise of growing exports. A balance of 17% of businesses expect order book levels to rise, in the second half of this year – with 39% expecting a rise in foreign sales, as a result of the rebound in world demand and a sustained fall in the pound.
 
Uncertainty about falling domestic demand is by far the biggest worry amongst businesses with 56% in the region saying that fragile domestic markets are their greatest concern.  
 
The bank said confidence levels across the sectors reflected the concern over domestic demand – with those sectors that are most reliant on domestic markets proving to be the least optimistic. Confidence levels in public sector firms declined to -1%, largely due to fears over spending cuts, while the hospitality and leisure sectors were similarly pessimistic.
 
The UK’s smallest businesses (with a turnover of under £1m) saw confidence slip, albeit by just one percentage point, to 10%, though that level is significantly above the lows plumbed in 2008.
 
Confidence levels were also fragile amongst manufacturers, with the region showing the least amount of faith in the overall strength of the sector. One glimmer of hope is that export demand will remain high.

With confidence levels low, businesses in the region are reluctant to invest in themselves, while the report concludes fears also remain over weak profit levels and excess capacity.