Written By:

Ian Price

Director

CBI

 

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With Welsh firms having been buffeted by strong cost pressures, rising interest rates and a persistent cost-of-living crisis that’s hit consumers hard, trading conditions have been tough for everyone in recent months.

That’s why businesses across Wales will have been encouraged to see the ONS report lower-than-expected inflation for June. While economists expect the Bank of England to implement a further interest rate rise in August, there is hope that we might have started to turn the corner in our fight against increased inflation.

On Wednesday, the International Monetary Fund’s latest global growth report revised up its forecast for the UK and said output should grow by 0.4% in 2023 (in line with our own economic forecast). But while that would mean the UK escapes a much-feared recession, the UK’s growth trajectory is ahead of only Germany among fellow G7 countries.

Notes of cautious optimism have also started to come through in recent CBI surveys. Our longstanding manufacturing survey found that sentiment among manufacturers had improved for the first time in two years, with orders markedly picking up. Output also seems to have stabilised, after having fallen steadily since February.

The survey painted a subdued picture overall, but it appears that supply chains are starting to recover, while global price pressures and worries over labour shortages are easing.

There were however some areas for concern. Despite coming off recent highs, lack of skilled labour remains a significant challenge, while firms citing access to finance as a barrier to investment has reached its highest level in 32 years – excluding the period covered by the pandemic.

There was also some less positive news for the services and distributive trades sectors. Consumer services activity declined sharply, once again highlighting the pressures on household incomes, while retail and motor trades sales also continued to fall.

That some economic indicators have started to point in the right direction is welcome, and for many – long overdue, but there’s still a lot of turbulence around for businesses to navigate. Against this background, global competition for much-needed investment has only been hotting up – particularly in the highly prized green space.

The US Inflation Reduction Act and the EU’s Green Industrial Plan have shown a way ahead by staking a major claim for prizes in the green economy. While the government lacks the fiscal headroom to pursue similarly costly approaches, a recent CBI report found that smart policymaking and leveraging our early leader advantage could help the UK outcompete its rivals for green investment.

That ‘outsmart not outspend’ mantra is something we need to apply across the economy as we target high growth sectors that can put the UK back on a path to strong, sustained growth. By creating a stable, predictable and supportive policy environment, where firms feel confident about seeing sufficient returns on their investments, we can give businesses across the country the conditions they need to thrive.

The UK may be set to avoid recession this year, but that doesn’t mean we’re out of the woods just yet. While navigating turbulence remains the first order of business for most Welsh firms, I’m deeply encouraged by the number of businesses I speak to that are looking further ahead with real ambition.