Confidence among South West businesses has surged as the fall in sterling opens up new export opportunities, according to a new survey.
The bounce back in optimism in the region – the second strongest across the UK – is in marked contrast to the position last September when South West firms, along with those based in London, were the most pessimistic following the EU referendum result. 
However, despite the rebound in confidence, South West firms admit they face a number of serious challenges this year, with economic uncertainty seen as the biggest threat.
The mixed picture emerges from the latest Business in Britain report from Lloyds Bank – the first major survey of the new year that gauges the views of firms in different regions and nations of the UK.
The report’s confidence index – an average of respondents’ expected sales, orders and profits over the next six months – increased to 17% in the South West, up from just 4% in September.
The South West’s confidence boost is the largest increase in England, followed by London and the South East, and second when Scotland is included.
This renewed optimism is likely to mean more job creation with a net balance of 7% of firms planning to recruit new staff, a sharp turnaround since September when the balance was 10% expecting to cut their workforce.
While 29% said they were experiencing difficulties in recruiting skilled labour, that was down marginally from 32% last time.
Challenges identified by South West firms for the next six months were economic uncertainty (24%), followed by weaker UK demand (18%) as firms wait for further details of Britain’s EU exit.
Political uncertainty (13%), weaker overseas demand (7%), regulation (7%) and higher input costs (6%) were also viewed as threats.
However, the weakening of the pound since the Brexit vote has sparked a major shift in exporting intentions by South West firms, according to the report, with thenet balance of firms anticipating stronger overseas sales in the next six months increasing significantly to 29% from minus 9% in September.
This upturn was led by a big increase in the number of firms anticipating stronger exports to Europe – despite Brexit – and Asia.
The fall in the value of sterling also contributed to a rise in firms’ pricing intentions. The net balance of firms expecting to increase their prices in the coming six months grew to 23% from 17%.
Lloyds Banking Group South West director for SME banking, David Beaumont, pictured, said the report showed South West firms had kick started the New Year with a surge in confidence.
“Despite the potential challenges ahead, the region’s businesses are staying optimistic for a successful 2017,” he said.
“Exporting remains the key to regional economic growth and it’s encouraging to see that South West firms are planning to explore new territories and export their products to new markets, as well as create new jobs.
“While this year may present more challenges for businesses, including understanding the impact that leaving the EU will have, South West business owners are resilient and continuing to strive towards reaching their growth ambitions.”
Lloyds Bank Commercial Banking senior economistHann-Ju Ho added: “The weaker pound has given a huge boost to exporters as they look beyond their traditional export markets of the US and Europe.
“However, this has also led to a jump in the number of firms intending to raise the price of their goods and services in response to higher costs. As a result, we would expect inflationary pressures to rise this year.
“The relatively low levels of investment and recruitment intentions also suggest that economic growth is likely to slow in the next six months.”
Lloyds Bank’s Business in Britain report, now in its 25th year, gathers the views of more than 1,500 companies, predominantly small to medium-sized businesses, across the UK and tracks the overall balance of opinion on a range of important performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.
Publication of the report coincided with the closely watched Markit/CIPS UK Manufacturing PMI report, which showed that the weak pound helped UK manufacturers enjoy a strong end to 2016 with growth at its highest for 30 months.
