Business confidence plunges as firms face uncertain winter amid cost crisis

Business West’s latest quarterly economic survey has found that business confidence in the UK economy has reached an unprecedented low, with only 9% of companies feeling confident in the nation’s economic prospects.

This is down from 13% in the previous quarter and down from 32% in the first quarter of 2021, during the depths of the pandemic. 

Concerns about exchange rates have doubled to 26% since Q2, even before the recent rapid weakening of the pound which is affecting imports, inflation, and interest rates. 

Four hundred businesses from across the South West took part in the survey. The results were submitted before the recent mini-budget from the new government and underline the fragility in economic sentiment felt by many local businesses.

The survey found that business concern about inflation has reached a new record high of 73%, up from 69% in the second quarter of 2022. Utility costs were the leading inflationary pressure, with 68% of respondents saying this was a factor for increasing prices, while 52% of respondents cited fuel as the leading cause. Over half of businesses surveyed expect to raise their prices during Q4. 

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Andy Dodd, owner of Flipside Bar in Bristol said:

“With all the increases that we've seen and now with electric costs on top, the business is becoming unviable.”

Stuart Dennis, Director of BK Grain Handling Engineers based in Marlborough in Wiltshire said:

“Continually rising prices means that we have to pass on costs to customers, often after projects have commenced. This in turn leads to a break down in customer relations, something that our company has relied upon for a long while.”

Businesses are also finding it difficult to recruit staff, with half of respondents in Q3 reporting they tried to recruit in Q3, with most facing difficulties. 

Wage inflation is also weighing on employer’s margins, with 60% of respondents feeling pressure to increase their prices because of labour costs.

Nigel Wratten, Director of Tuxedo Junction, a wedding clothing store based in Gloucester, said:

“It’s been very hard to get any staff except expensive agency workers.” 

Rachel Butler, owner of The Hearty Hare Café in Chippenham, Wiltshire, said:

“Rent, business rates and staff costs are increasing. We can’t charge our customers £6 for a coffee.

“It has become a juggling act and cutbacks have been made as much as possible.”

The survey also found that net UK sales and orders, which were both positive in Q2, have tipped into negative territory. This comes as UK consumer confidence has fallen to the lowest since records began in 1974.

Matt Griffith, Director of Policy at Business West, said:

"In a reflection of the volatile times faced by the UK and globally, our report sees several historic highs in our measures of local business concern, from inflation to future economic uncertainty.

“As the region’s businesses approach a difficult winter characterised by higher costs across all categories of their spending, rising interest rates and falling consumer demand, there are scant sources of brightness on the horizon.

“The energy price intervention will have addressed some of our local firms’ most pressing concerns but worries about exchange rate volatility and broader UK economic health are growing, even before the full fall out from the market’s response to the government’s mini budget is felt.

“Our findings highlight the scale of the challenge in securing future business confidence over the coming year.”