Business confidence in Wales has fallen for the fifth consecutive quarter, as companies navigate fresh economic challenges combined with political instability, a survey of chartered accountants has revealed.
Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Wales for Q4 2022, published today (TUESDAY 15 NOVEMBER 2022), put confidence at -25.2 on the index. [1]
Sentiment had been affected by the impact of recent political events on interest rates, taxes, and government spending, ICAEW said.
As the Chancellor considers the difficult job of balancing Britain’s books, he must also use Thursday’s Autumn Statement to restore confidence, credibility and long-term environmentally sustainable growth to the UK economy, the Institute said. Further targeted support could be needed to help people and businesses grappling with the ongoing cost of living crisis when energy support schemes end in April, ICAEW added.
Business challenges changing
Supply-side challenges have started to ease but remain prominent, with two in five businesses reporting the availability of non-management skills as a growing challenge. However, concerns have been raised by late payments, with one-fifth of companies identifying them as a growing challenge, indicating that customers across Wales face increased financial pressure. [2]
Regulatory requirements were cited as a growing challenge by 37% of businesses, while companies continued to have problems from staff turnover. [3]
The ability of companies to expand into new areas has increasingly become a concern, cited by 15% of the country’s businesses and so more widespread in Wales than in any other part of the UK.
Costs going up
Average total salary growth has stayed high, at 3.5%, which is almost twice the nation’s historical average. Nevertheless, Welsh businesses are preparing for an additional 4.2% rise during the forthcoming 12 months, which if achieved would outpace the rest of the UK and be the fastest rate experienced in Wales since the BCM started. [4]
Meanwhile, input costs continued to rise at a record high, with a similar increase forecast for the next 12 months. In response, companies have put their selling prices up sharply, and an even bigger rise is forecast.
Low expectations for export growth
Sales have risen in the past year, but both domestic sales and exports underperformed when compared to the UK average. The survey found that businesses in Wales have the weakest forecast for export growth in the UK, at just 1.9% in the year to Q4 2023, despite typically being some of the most export-intensive of UK companies. [5] [6]
Restrained investment
The uncertain economic climate and weaker sales and profits forecasts have led to cautious investment plans. Research and development (R and D) budgets grew by just 0.8% year-on-year, the BCM found, with a similar increase planned for the next 12 months. ICAEW said these weak investment intentions were concerning, particularly in Wales’s large manufacturing sector, given the importance of capital investment and R and D to boost productivity and competitiveness. [7]
Robert Lloyd Griffiths, ICAEW Wales Director, said:
“Business confidence in Wales has remained negative amid growing economic challenges and recent political turmoil, and confidence has fallen for the past five quarters.
“Firms have told us that as well as supply-side challenges they are having problems with access to capital and late payments, which has particularly affected our small and medium-sized companies.
“On Thursday, the government must outline a plan to restore confidence, generate environmentally sustainable long-term economic growth, and bring opportunity and prosperity to our left-behind communities and regions.”
Nationally, business confidence plummeted further into negative territory, with sentiment at -16.9 on the index, the weakest since the pandemic. High inflation, new financial challenges, and ongoing recruitment difficulties, along with tough economic conditions and recent political turmoil, likely drove the large drop in optimism, ICAEW said.
