Rising oil prices and fallout from the MG Rover crash have been blamed for business confidence in the West Midlands plunging to its lowest level for nearly four years.
Firms in the region have reported a dramatic fall in sales and profitability during the last six months, according to a study by Lloyds TSB Corporate.
Overall confidence is now at its lowest level since December 2001, the poll said.
In another gloomy prognosis, a separate study said the number of profit warnings among local firms had doubled in the last three months.
According to the latest profit warning survey published by Ernst & Young, from April to June 2005 there were 97 profit warnings nationally, an increase of 33 compared with the second quarter of 2004, and an increase of 12 on the first three months of 2005.
In the West Midlands, six companies issued warnings in the second quarter of this year, compared to four at the same time last year, and three in the first quarter of 2005.
The collapse of MG Rover and the spiralling commodities costs, not least oil, have been blamed for the downturn.
Keith Simpson, who heads up Lloyds TSB?s commercial business in Birmingham, said: ?Confidence amongst West Midland firms has fallen sharply since the start of the year, which could put the brakes on economic growth.
?There are a number of factors that have contributed to the general decline in sales and profits during the last six months, not least the collapse of MG Rover.
?With oil prices having risen by 60 per cent year-on-year, many firms have also suffered from higher production costs, but have been unable to pass these on to their customers.
?However, capacity constraints have lessened and a decline in problems caused by skills shortages means inflationary pressures have eased.
?Against this backdrop there is scope for a cut in interest rates which will help reduce costs to business at a time when pricing power is weak.?
According to Lloyds, 37 per cent of firms experienced a decline in sales, while 33 per cent witnessed a fall in orders during the first half.
During the last six months 43 per cent of firms saw profits fall, compared to 27 per cent that increased profits.
In addition, firms? investment spend, along with expenditure and recruitment plans have been scaled back.
Since January, 26 per cent of firms cut investment and 27 per cent expect to slash capital expenditure further over the second half of the year.
The survey?s confidence index, which is based on expectations for order books, sales and profitability during the next six months and is the percentage balance of those expecting an increase minus those expecting a decline, highlights the growing decline in confidence among West Midland businesses.
At the start of the year the index for the region was 20 per cent but has fallen to minus two per cent in this survey.
But despite the MG Rover crash, only one of the profit warnings came from a company operating in the automotive sector, indicating that many from the region?s automotive industry have diversified its customer base.
Other warnings came from retail, electronic and electrical equipment, telecommunication services and support service sectors.
Two firms cited problems with a major customer as the reason behind the warning and others blamed increased competition, difficult market trading conditions, discontinued contracts and sales short of forecasts.
Ian Best, corporate restructuring partner at Ernst &Young, said: ?Business confidence in the Midlands is clearly faltering, and although the economy is weaker than a year ago, this high level of warnings is a genuine concern.
?Since a rapid change in the local economic picture is unlikely, companies need to take action if they are to stem the tide of bad news.?