Business Barometer - Spring 2011

Stephen Morse, Partner and Head of Business at Michelmores, comments on the findings of the latest Western Morning News/Michelmores Business Barometer.

When economic times are tough - and they are tough - it is easy to be gloomy and look at all of the external factors that impact on your business with a glass half empty.

However, once again the Western Morning News Business Barometer, compiled and analysed by the Business Group at Michelmores, throws up some little expected results.

What we see in this survey is an emerging but distinct optimism.  We're not yet ready to order a brass band but neither do these results reflect despair and blame.  More than 50% of respondents are optimistic about trading conditions in the coming year, a small improvement on the last Barometer, and the same proportion think that their business activity will actually increase in the next three months.

Remarkably, more than 30% of respondents expect to increase their workforce in the near future despite so many economic pundits predicting rising unemployment.  This may be because the business community who respond to this survey means to conduct business as usual and maintain levels of activity while it is the public sector where the job cuts are expected to take place - but will they?

I am not convinced the public sector is very good at self-imposed rationalisation and cost-cutting.  It's like a star fish - cut off one limb and another grows elsewhere. 

There are predictions that redundant public sector workers will help the private sector take up the slack of rising unemployment by using their pay-outs to start up new businesses. They may well do so but I'm not sure that we will see a significant positive economic impact from this in the short term - these businesses will take time to grow..

What we can be sure of from these results is a resounding 'thumbs up' for Chancellor George Osborne's Budget.  Some respondents said that he had no choice in taking his austerity and revenue increasing measures (including a rousing 70% in favour of the rise in VAT) but the underlying message is that the South West business community is right behind him and recognise these measures must be taken however much they hurt.

The business community is bracing itself to cope with the fall out of the last Budget but it is likely to be consumers who are hit the hardest especially as wage inflation is predicted to stagnate for the foreseeable future.  This in turn will hit the retail sector where we could see further price increases adding to consumer woes.

Many are counselling caution regarding the Monetary Policy Committee's policy on interest rates.  It is thought that a premature rise in Bank base rate will further hit consumer spending power, delay any High Street recovery and deter the corporate sector from investing.

To make matters worse for Middle England, commodity prices continue their relentless rise.  While some businesses can build in contract escalators so that their customers automatically pay more as key prices, such as fuel, reach a certain level, many cannot.

Anecdotally, I know of a baker whose raw materials costs are soaring.  Flour is hugely expensive and they can't even source local cream for their cakes.  The answer is to cut down portions and maintain prices or increase their prices and risk the wrath of their customers. I am sure that this is a scenario being repeated many times over up and down the country across many sectors, and applies right across the board in respect of the price of fuel at the pump.

This Barometer confirms the realism and stoicism of local businesses.  Times are hard but you have to adapt and cope.  As one respondent put it, - "Only small start-ups of new sectors like 'renewables' are worthy of assistance. Established businesses should stand on their own two feet and manage their businesses better.  It's a capitalist economy - deal with it."

By and large, that's exactly what our business community is doing.