Confidence among Black Country businesses has evaporated amid problems in the international credit markets and falling consumer spending, a survey shows today.
Both manufacturers and the service sector are forecasting tough times ahead in 2008.
Results from the latest Black Country Chamber of Commerce quarterly economic survey show that the relative optimism of a few months ago is disappearing fast.
Ian Holder, a partner at accountants and business advisers Mazars, who analysed the Chamber survey, said: "While our survey for the fourth quarter of 2007 shows the manufacturing sector having a cautiously optimistic view for increased turnover, it is resolutely pessimistic on cashflow and profits.
"Confidence within the manufacturing sector has notably decreased from levels witnessed during the third quarter, with confidence for increases in turnover having fallen by 52 per cent on balance.
"This decrease has occurred against the backdrop of the Bank of England cutting the base rate during December to 5.5 per cent.
"With recent uncertainties such as the collapse of Northern Rock and issues surrounding the availability of credit in the economy, this appears to have had an impact on the cashflows of those in both manufacturing and service sectors."
The survey shows that the service sector in the Black Country is seeing lower levels of of confidence in turnover, profit and cashflow compared with the third quarter of 2007.
However, Mr Holder added: "It should be noted that both turnover and profit have fallen by only a nominal amount but are still showing an overall positive level of confidence.
"And although confidence is falling, it is not yet at the low levels seen 12 months ago.
"Several factors may potentially be identified for the falling level of business confidence in the service sector.
"The cut in base rates, coupled with the difficulties in gaining credit in the economy mean that consumer spending within the economy is expected to slow down.
"The indirect effect of the decrease in the base rate will be to reduce the strength of sterling, which is reflected by the gradual weakening of the pound against the euro.
"Recent developments in the US sub prime mortgage market and the resultant credit crunch mean that fears in previous quarters have been proved correct and have led to increased fears of a possible recession in the US. "Should this happen this could further strengthen the bleak future outlook of the business community."
The downbeat report was reinforced by figures from Ernst & Young showing that profit warnings from West Midland firms increased by nearly 70 per cent to 22 last year.
The East Midlands fared far worse, with profit warnings increasing fourfold.
In quarter four of 2007, eight profit warnings were issued by West Midland quoted companies, an increase of three from quarter three of 2007 and double the number from the same period last year.
Nationally, profit warnings totalled 384 last year, the highest figure since 2001. One in five of the warnings in the fourth quarter explicitly blamed the fallout from the US sub prime mortgage crisis and the credit crunch.
Across the West Midlands, profit warnings were also blamed on "sales short of forecasts", "increasing costs and overheads", "higher sales of lower margin products", "exchange rates changes", and "adverse weather conditions".
Ian Best, corporate restructuring partner at Ernst & Young's Birmingham office, said: "The UK economy will slow in 2008 - the only question is how much."