Midlands business leaders confident in their proven ability to adapt

Looking back at 2022

Post-pandemic, businesses began 2022 in better shape and the ability of many to repay government support loans relatively quickly, freeing themselves of that debt burden added to the sense of optimism in H1.

That positivity continued with the arrival of the Commonwealth Games at various locations in the region, putting the Midlands on a global stage and providing a commercial boost for the retail and hospitality sectors.

However, the rapidly increasing inflationary pressures that began to bite across the country in H2 hit the Midlands hard because of the regional economy’s particular reliance on manufacturing. While some manufacturers had to look at diversifying to deal with these challenges, in contrast, professional services firms generally continued to perform well – I think largely because of an accumulation of work from the pandemic period.

Another clear feature of 2022 has been the resourcing challenges: for sectors like retail, hospitality and leisure the issue was simply a shortage of bodies with the right skills; for the professional services sector, it was more about getting to grips with how they managed new hybrid working arrangements.

Rising energy costs

One key consideration for businesses in the region is the increasing cost of energy. The latest Government energy support package will see the Price Cap removed at the end of March for businesses in England, Scotland and Wales, replaced by a new discount mechanism based on wholesale prices. All businesses are likely to see a rise in costs although energy-heavy sectors will see higher discounts available.

In the short term, cash and profits could be impacted and some businesses may look to increase prices or reduce costs and energy usage to try and maintain margins. Whilst investment in longer term solutions may hit corporates as an extra cost in the short term, it might also be imperative for businesses to look at how they can future-proof their running costs by developing a more sustainable/renewable approach to their energy consumption. With sustainability high on the agenda for many businesses, it is important that the cost of doing business does not overshadow this important transition. For projects with long-term sustainability at the core, sustainable financing may be a suitable option to support any immediate shortfall in cashflow.

Investment to boost productivity

Rising costs, inflation, high interest rates and reduced discretionary consumer spending will continue to be something that affects business confidence, especially decisions around investment.

Local manufacturers, for example, will be keen to curtail rising costs and one way they can do that is, of course, through investing in automation. Many businesses I speak to talk about the dilemma they face in weighing up the fine balance between the cost of investment in automation and the productivity benefits it can bring.

Working out the payback time on any investment is often key to deciding at what level to invest in equipment, machinery or anything else.

If consumer confidence continues to be fragile it seems likely that the hospitality and leisure sector will bear the burden of reduced spend but there could be benefits for some businesses, especially in Wales, if holidaymakers once again choose staycations over foreign holidays.

I think one legacy of the pandemic was a renewed value in local amenities and attractions, but hospitality businesses will need to once again consider how they can optimise their offering to meet changing customer preferences.

All sectors will come under increasing scrutiny to prove their sustainability credentials to customers and to larger corporates when looking to win contracts as the influence of the environmental, social and corporate governance (ESG) issues continues to grow. This is a challenge – but also an opportunity to win a competitive advantage in the marketplace.

Agility in tough trading conditions

Speaking of positives, I’m in no doubt that the pandemic taught leadership teams across our region how to be more agile and less reticent to make changes, at pace, to adapt to tough trading conditions.

With confidence born of surviving the severe tests of the pandemic, many have become used to expecting the unexpected and are constantly thinking about the what ifs, maybes and ‘what's our Plan B?’ if things don’t go to plan.

An exciting project like the Gigafactory, near Coleshill in Warwickshire, which will begin supplying batteries for electric vehicles from 2025, is indicative, I think, of the opportunity for expansion there is for the technology sector in the Midlands.

Meanwhile, the East Midlands Freeport, which was approved in 2022 and will cover the region around East Midlands Airport, will be of interest to local businesses, given the special tax and tariff breaks available.

Owing to its geography, the Midlands will continue to be a vital transport and distribution hub, but the long-lasting shortage of drivers and resultant inflationary wage pressure will remain a concern.

Labour shortages are a challenge in every industry but the feedback we’re getting is that staff might be less ready to job-hop in the current climate, choosing instead to stick with their current employer rather than risk the unknown at a new one. I also know that many business leaders are asking themselves how they can retain staff by offering benefits that employees value such as flexible hours and other perks.

Fostering tomorrow’s entrepreneurs

I think there are always benefits in encouraging entrepreneurs and Barclays has worked hard to expand our Eagle Labs network across the Midlands, focusing on high growth sectors and particularly working in partnership with the region’s universities. I like to think that we’re playing our part to support the successful business leaders of tomorrow.

We’re also spending a lot of time ensuring our Barclays team has the very best local knowledge and sector expertise to support businesses, and given what I’ve said about greater ESG scrutiny, a full understanding of the ways we can support customers in this area through Barclays’ sustainability linked products and services.

Generally, I’d say Midland's businesses are optimistic about next year and a lot of that is down to confidence in their own proven ability to adapt. I think many are well equipped for whatever’s ahead and relishing the challenge of 2023.

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