Silicon Gorge rising: Can the South West tech sector sustain its growth?
What condition is the South West economy in? Is it a thriving area for growth and funding? Where can the region do better? We answer these questions and lots more…
Uncertainty across the macro economy is rife, but this corner of the UK is brimming with possibility. Businesses are taking advantage of the favourable business climate by seeking possibilities to expand, whether by building their teams or diversifying into new markets.
The South West is a vibrant and diverse economy with much to offer. According to Briony Phillips, Special Projects Lead at Rocketmakers, the breadth and depth of industries and exciting new developments, including the launch of the Hydrogen South West Consortium and the impact of MyWorld (exploring the future of creative technology innovation), are to be celebrated.
“An impressive 211 companies have announced equity deals totalling £563.5m, with seven of those companies raising more than £10m,” she says.
Crispin Busk, Founder of Kabuto Noodles, based in Bristol, thinks the South West has a lot going for it from a quality-of-life perspective, and therefore attracts entrepreneurs and businesses into the area. “In the world of food, there’s a huge spread, ranging from the big local ones, like Yeo Valley, down to the newer innovative ones, like Boundless Snacks. There are lots of different bodies out there to help, including Government agencies, as well as support agencies,” he says.
According to Busk, the South West has one of the strongest heritages in the country vis-a-vis the food industry, and the region needs to promote this unique selling point even more.
The South West is transforming into a bustling tech hotspot! Home to 17,500+ tech firms, including big players like Software firm Cardstream, chip makers Graphcore, and engineering giants Dyson, it’s no wonder it’s been dubbed the ‘Silicon Gorge’.
The South West tech sector is set to grow to almost £20bn Gross Value Added (GVA) a year by 2026, creating over 125,000 new jobs, according to a study from Whitecap Consulting. However, Phillips remains cautious.
“With the recent launch of the £200m South West Innovation Fund and the exit of Amdaris to Insight Enterprises (a Fortune 500 company), it’s easy to assume that the economy of the South West has never been in better shape.
“But there are also signs of challenging times – some of our favourite restaurants closing, funding delays and blockers for start-ups and scale-ups alike, and much more.
In fact, earlier in the summer, Beauhurst demoted Bristol to being the 5th Top Startup Hub – down from 3rd place in their previous reports,” she warns.
Seasonal no more
The South West was traditionally seen as a seasonal destination. No more. According to Daniel Jenkins, Head of Client Services at Wagada Digital, seasonality has gone straight out of the window in terms of trends in business growth.
“While 2022 felt buoyant, Q1 this year saw high inflationary rates, along with the increase in interest rates for many, not just in the South West, but across the country. However, in the last 2-3 months, things feel more buoyant and it feels like clients have more trust, courage, faith, and positivity in their outlook, in terms of dipping their feet back into the water and considering investments once again,” he says.
“We are seeing growth targets increase and businesses looking more ambitious in what were challenging conditions, during Q1. Certainly, into Q3, businesses feel as if they are beginning to find their feet,” he adds.
Jenkins is optimistic about the buoyancy of the economy, outlining the Golden Valley development in Cheltenham, and offering many job opportunities. “The move to establishing the UK’s Silicon Valley will create huge opportunities for this part of the South West region, and the expansion of a skills and educational pipeline,” he enthuses.
Over the last decade, digital connectivity has improved in rural communities across the UK, creating new opportunities within previously disconnected regions. However, a digital divide remains between rural and urban communities, which is preventing rural communities from achieving their growth potential, with many areas still unable to access reliable connectivity.
The new report ‘The Great Rural Revival’, shows £65.1bn could be added to the UK economy and employment could be increased by 6.8% through the creation of hundreds of thousands of new jobs if rural areas had access to excellent digital connectivity. The South West could benefit, and the local economy could unlock £7bn and generate 39,000 new jobs.
Robert Beauchamp, Managing Economist at Cebr commented: “Our findings highlight how improved digital connectivity could unleash growth in the rural economy. These impacts would mainly be felt outside London, in regions like the South West. Improved connectivity could allow rural businesses to be more efficient, make full use of digital technologies, and create more jobs to strengthen the rural economy.
“Without improved rural connectivity, problems which could be solved will instead remain and the opportunities related to better connectivity would not be realised, meaning rural communities will continue to underperform relative to their urban counterparts.”
Ups and downs
Despite a challenging year for the business community amid rising inflation and economic uncertainty, many firms have been quick to adapt and innovate – and as a result, are thriving. It’s these efforts we want to celebrate.
Data from millions of card payment transactions was analysed as part of the takepayments UK Spending Index, which broke down consumer spending by region and industry. Results concerning the South West show that:
- Consumer spending grew 21% from 2021 to 2022 in the South West, which was equal to the overall UK average growth of 21%
- However, the story isn’t equal across the region – consumer spending in Cornwall only grew by 13%, whilst it grew by 25% in Dorset
- Compared to the South East, the economic growth since the pandemic has been slower – the South East’s spending grew by 36% between 2021 and 2022
- In 2022, The South West accounted for 8.4% of the UK’s spending
These results follow a recent stream of reports highlighting the fragility of Cornwall’s economy, which has struggled to recover following the disruption to tourism during the Covid-19 pandemic. Census figures from the Office for National Statistics also found that two in five Cornwall residents are economically inactive, with data showing 53.9% of households in Cornwall are “deprived” in at least one of the three dimensions of deprivation.
Pros and cons
The pros and cons of business in the South West are two sides of the same coin, according to Crispin. “With fewer major cities than other regions, there is a lower selection of people, and recruitment can be harder. However, the right people are often either close by, looking to move, or can work remotely. This does make recruitment a bit harder though,” he warns.
Also, depending on where the business is based, it can be further from your major customers, meaning there’s longer and more expensive travel, he adds. However, Jenkins is positive about the region and reveals there is lots of development in business-to-business growth, with towns such as Gloucester still attracting a lot of investment.
“Moving away from a London-centric feel to an area where talent is living on businesses doorstep, is beginning to cut through. Similarly, people who have moved away and then returned to the area, myself included, particularly for those with young families, support this idea of a growing and strong workforce.”
He goes on to outline that accessibility is always a strong consideration, and with the M4 corridor, more open and accessible than ever before, particularly with the free bridge in place, it means there is more connectivity to surrounding areas and businesses in Wales.
“The location of the region within the UK means that businesses can develop commercial relationships with other important hubs, such as Birmingham, Cardiff, and Worcester, for example, as well as increased employment opportunities.”
Business confidence boom
According to the Business Barometer from Lloyds Bank, confidence rose 12 points during August to 46%, the highest reading since February 2022. Companies in the South West reported higher confidence in their own business prospects month-on-month, up two points at 49%. When taken alongside their optimism in the economy, up 23 points to 43%, this gives a headline confidence reading of 46%.
The economic and demographic challenges everyone in the UK is facing have led to a greater focus on business survival and less investment in collaboration. Phillips would like to see more ‘reinvestment’ (not just financial) from successful founders and business leaders into the next generation and the South West’s core infrastructure. “This might include sharing expertise, networks, specific experiences, or funding to enable the region to go further and faster,” she advises.
Looking ahead, businesses that continue to manage their working capital and monitor tight margins will be well-placed for a prosperous 2024.