A monthly Business Barometer in the South West has provided "grounds for optimism".

Business confidence in the South West fell seven points during January to 10%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in the South West reported lower confidence in their own business prospects month-on-month, down 20 points at 14%.  However, when taken alongside their optimism in the economy, up six points to 7%, this gives a headline confidence reading of 10%.

South West businesses identified their top target areas for growth in the next six months as evolving their offering (37%), entering new markets (34%) and investing in sustainability (33%).

The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

A net balance of 2% of businesses in the region expect to decrease staff levels over the next year, down last month when a net balance of 13% of businesses expected to make new hires.

Overall UK business confidence climbed in January, with firms reporting their highest confidence levels since July last year.

Business confidence increased by five points to 22% and the net balance of businesses feeling optimistic about the economy doubled on December's reading to 16%.

Ahead of National Apprenticeship Week (6-12th February) 30% of businesses across the UK reported that they are looking at opportunities to grow by investing in staff development and training. A net balance of 17% of firms reported plans to create new jobs in the next 12 months.

Amanda Dorel, regional director for the South West at Lloyds Bank, said: "It's encouraging to see firms thinking long-term as we enter the new year, with many exploring ways to diversify their markets and invest in greener ways of working.

"Those looking to diversify their markets can tap into tools that will allow them to examine international opportunities, and those looking to increase sustainability can access discounted lending through the Clean Growth Finance Initiative.

"Although it's been a challenging few years, we're hopeful 2023 will offer more opportunities for the region and we'll be by the side of businesses to help them capitalise on their future success."

For the second month in a row, confidence in the manufacturing and service sectors increased, with manufacturing rising to 28% (up 15 points) and services up to 25% (up seven points). Business confidence in construction was down two points to 27%, while retail confidence fell for the second month in a row to 7% (from 13%), the lowest level since February 2021.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: "Business confidence continues to improve following the December boost. Firms are clearly more optimistic about the wider economy and this is driving the increase, helped by precursory signs that wage and other cost pressures may be easing.

"It is still a tough environment for businesses, with high energy bills remaining a concern during the winter months, but there are grounds for optimism for 2023 if inflation starts to trend lower."