Business confidence in the South West has improved and remains firmly in positive territory amid strong domestic sales growth, according to new research.
Published less than a week before one of the most important Budgets for a generation, the quarterly survey of chartered accountants in the region paints a more upbeat picture than many recent national surveys. 
Sentiment tracked by ICAEW’s latest Business Confidence Monitor (BCM) for the South West puts confidence at 14.1 on the index – up from 12.9 in the previous quarter.
While this is marginally below the national average of 14.4, the UK-wide picture is less rosy with the national figure falling for the first time in a year.
The ICAEW said the fall was likely driven by mounting concerns over the tax burden and weaker exports growth, while investment remained low.
Confidence in the South West was boosted by lower cost pressures and annual domestic sales growth of 4.7%, which exceeded both the historical average of 3.1% and the national average of 3.8%.
However, this is set to slow slightly over the next 12 months with growth of 4.4% forecast, likely due to weak projections for domestic sales in the region’s manufacturing and engineering sector. 
Export sales growth fell to 2.3%, the second quarter in a row it has slowed, leaving it less than the national average.
Regulatory requirements were the most common issue affecting the growth of South West’s companies, mentioned by four in 10, while concerns over competition in the marketplace also increased.
Ahead of a Budget widely expected to target corporate taxes, the number of companies struggling with the tax burden increased sharply to 31% – a record high for the survey and almost double the historical average of 16%.
Input price inflation in the South West slowed to 3.9% – one of the smallest increases across any UK region this quarter – with businesses anticipating further easing in the year ahead.
Firms raised their selling prices by just 1.6% over the year, the lowest increase of any UK region and the smallest rise in three years. In the coming year, South West firms anticipate one of the lowest selling price increases in the UK. 
The survey results also show that falling cost pressures combined with rising sales boosted profits to an average of 3.5% in the year, stronger than both the historical average of 3.1% and the national rate of 2.8%.
While profits are predicted to grow 4.9% over the next 12 months, this is below the national average of 5.1%.
ICAEW said this comparatively lower increase likely reflected weaker sales growth expectations, and the lower predicted increases in selling prices.
The ICAEW said to boost confidence, the government should use the Budget to conduct an urgent review of the UK’s tax system and introduce reforms to stimulate economic growth, build confidence and drive investment.
ICAEW South West director Beverley Waters, pictured, added: “It’s encouraging that business confidence has improved in the South West, as falling cost pressures and increased sales have led to rising profits, and although confidence is positive our companies remain less optimistic than in other parts of the UK.
“Nevertheless, companies have reported a number of growing challenges, including concerns about the tax burden, which are nearly double the historical average, along with worries about regulatory requirements and competition in the marketplace.
“As speculation continues ahead of what is likely to be a difficult Budget, we are calling on the Chancellor to provide the certainty and stability that companies need.
“Reforms to VAT and business rates, alongside public and private investment, could help to achieve this.”
