Businesses in the South West remain confident of their prospects for the next 12 months, with companies expecting strong sales growth in the year ahead, a new survey has found.

ICAEW's Business Confidence Monitor for Q4 2021 for the South West, published on Tuesday 23 November 2021, found that the index remains in very positive territory, albeit slightly lower than the record level reached earlier this year.[1]

The high reading is a likely reflection of the sales growth expected over the next year, with the slight decline quarter-on-quarter most likely because of challenges in the labour market and the cost pressures businesses are facing.

As the recovery continues, salaries in the region are expected to grow by 2.7% year-on-year, slightly more than the national average of 2.5%.

Companies in the South West reported that domestic sales increased by 2.1% year-on-year, after a challenging start caused by COVID restrictions. However, in the same period, exports contracted slightly, by 0.4%.

Nevertheless, the region's businesses expect strong domestic sales growth of 6.9% in the year ahead.

This is despite a 2.6% rise in input prices over the past year, with a similar rise projected for the next 12 months.[2] Prices charged to customers were increased by 1.5% in the year to Q4 2021, as companies did not absorb these added costs, and are expected to rise by a further 1.9% in the coming year.

Recruitment a problem for some firms

Companies in the South West are facing problems with recruitment, with four in 10 businesses citing staff turnover as an issue, higher than the national rate. This is likely a reflection of labour shortages faced across the board as businesses try to recruit staff to meet growing demand for goods and services following the pandemic.

Just over a third of companies said the availability of non-management skills was a growing challenge.[3]

Transport problems were cited as a more pressing problem for 40% of companies, compared to 26% during the same quarter in 2020, most probably because of problems with freight capacity and a shortage of transport workers, as well as post-Brexit logistical challenges.

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. [4]

Beverley Waters, ICAEW Regional Director for the South West, said:

"Companies in the South West are positive of their prospects for the next 12 months, and forecast strong growth in domestic sales. However, challenges endure and firms in the region face problems with recruitment and transport.

"Rising prices are also having an impact on our firms, alongside higher energy costs and growing national insurance costs. As the recovery continues it's vital that there are no further challenges for businesses to face."