Business confidence in the South West fell seven points during February to 31%, 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 three points at 37%. When taken alongside their optimism in the economy, down 12 points to 24%, this gives a headline confidence reading of 31% (vs. 38% in January).

South West businesses identified their top target areas for growth in the next six months as diversifying into new markets (34%), investing in their teams (33%), and evolving their offering, for example by introducing new products or services (33%).

A net balance of 36% of businesses in the region expected to increase staff levels over the next year, down seven points month-on-month.

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

Overall, UK business confidence dipped two points in February to 42%, driven by softening confidence from firms in both their own trading prospects (49% vs. 51% in January) and the wider economy (34% vs. 37% in January).

However, companies' hiring intentions increased to the highest level since May 2022, with 36% of firms intending to increase staff levels over the next 12 months, up three points on the month before.

There was a mixed picture for sectors this month. Confidence fell in manufacturing (nine points to 40%) and construction (seven points to 38%) respectively, although results remain higher than the same time last year. In contrast, the dominant services sector was unchanged compared to January at 45%, exceeding all months of 2023 except for November. Retail confidence was broadly steady, dipping one point to 41%.

Amanda Dorel, regional director for the South West at Lloyds Bank Commercial Banking, said: "This dip in confidence comes amid improving, but still very challenging, economic conditions.

"While inflation is relatively slower than it was last year, it's still weighing on household spending. This is something that South West businesses will be particularly sensitive to given the region's strong base in hospitality and tourism. Firms will be hoping for further improvement in these areas as the warmer, busier, months draw nearer.

"However, it's hugely encouraging to see that the region's firms are - as always - pressing ahead in search of new growth opportunities. As they explore new markets and make investments in their operations, we'll continue to be by their side to support their ambitions."

Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: "This month's data still reflects a positive mood among businesses despite a marginal fall in overall confidence. Firms appear to be upbeat about their prospects and the economy, supporting their positive staffing expectations.

"Looking at the sectors, there is a mixed picture. There was a slight fall in confidence reported in the manufacturing and construction sectors, while retail and services stood their ground - remaining unchanged compared to January's figures. But despite the manufacturing and construction fall, businesses are still showing high levels of confidence.

"The split across the regions also provides reason to view the dip in confidence at the broader UK level cautiously. Six regions have reported an increase in confidence while the other six have reported a decrease. So, scratching the surface, we see a story that continues to show a more positive outlook for the year ahead."