South West businesses report more measured conditions at the end of 2025 as cost pressures persist
South West businesses closed 2025 in a cautious position, according to Business West’s latest Quarterly Economic Survey (Q4 2025). The results point to a weakening in business conditions compared with the previous quarter, particularly in relation to domestic demand, profitability expectations and investment intentions.
While some indicators, such as cash flow, showed modest stabilisation, the overall picture suggests subdued expectations alongside persistent cost pressures and economic uncertainty.
In detail:
Business expectations become more restrained, but not uniformly negative
Forward-looking indicators suggest a more measured outlook for the year ahead. While 46% of businesses anticipate profitability to worsen over the next 12 months (up from 36% in Q3), over a quarter (27%) still expect an improvement, indicating a degree of continued confidence among part of the business base.
Turnover expectations also moderated. Although the share expecting deterioration increased to 30% (from 22% in the previous quarter), a larger proportion of firms (38%) continue to anticipate growth in turnover, suggesting that expansion expectations remain present despite a more uncertain economic context.
Trading conditions continue to be challenging
Domestic market indicators weakened significantly in Q4. The net balance for domestic sales fell to -26% (from -9% in Q3), while the balance for UK orders declined to -22% (from -13%). In both cases, a larger share of firms reported decreases rather than increases in activity.
Export sales also remained in negative territory but were broadly stable at the headline level, with a net balance of -7% (from -8% in Q3). However, export orders weakened to -16%, indicating some softening in forward-looking international demand.
Recruitment activity shows resilience despite easing demand
While recruitment activity declined compared with the previous quarter, 35% of businesses still attempted to recruit in Q4, suggesting that firms remain committed to acquiring and developing talent despite ongoing economic pressures.
Price stability in the short term
Recent pricing outcomes remained relatively stable, with 67% of businesses reporting no change in prices over the past three months and 28% reporting increases.
However, forward-looking expectations shifted markedly. Nearly half of firms (47%) expect to raise prices in the next three months, up from 34% in Q3. Labour costs remain the primary driver of cost pressures (69%), followed by utilities (44%) and raw materials (37%), reinforcing the ongoing impact of increasing expenses on business margins.
Cashflow shows slight improvement
Cashflow conditions improved modestly in Q4, with the net balance rising to -18% from -25% in Q3. While 22% of firms reported an improvement, 40% experienced a deterioration, indicating that financial pressures remain widespread despite some stabilisation.
Investment intentions remain weak across all areas
Investment intentions softened further during the quarter, reflecting ongoing uncertainty and financial caution. Net balances stood at -22% for plant, machinery and equipment, -15% for office space and property, -14% for training, and -12% for research and development.
Access to finance was broadly stable overall. However, a quarter of respondents (25%) expressed concerns about their current financial position, underlining continued fragility among a significant share of businesses.
Economic uncertainity and taxation remain key concerns
General economic conditions continue to be the dominant concern for businesses, cited by 78% of respondents, followed by general business uncertainty (66%). Concerns about taxation increased to 54%, while inflation was highlighted by 43% of firms.
Business rates and competition were each cited by 27% of respondents, and one in four businesses expressed concerns about their current financial position.
Businesses report resilience, but demand and costs persist as key challenges
Open-text responses suggest a mixed picture. While uncertainty and cost pressures remain dominant themes, a subset of firms continues to report stable pipelines, planned investment and emerging growth opportunities, including potential large contracts and strong order books in specific sectors.
At the same time, many businesses highlighted persistent challenges linked to labour costs, employers’ National Insurance, energy and business rates. Demand conditions were frequently described as fragile, with references to paused projects, pipeline risks and reduced customer spending, particularly within engineering and manufacturing supply chains.
Overall, the Q4 findings suggest that South West businesses ended the year in a cautious and defensive position. While some firms continue to identify opportunities for growth and resilience, weakening domestic demand, subdued investment intentions and sustained cost pressures are shaping a more uncertain outlook as businesses move into 2026.