Business confidence fell in almost all UK nations and regions in Q2 as the fallout from the Iran war continued to wreak havoc on firms, a survey of business leaders has found.
In Wales, confidence fell sharply but domestic sales growth is expected to strengthen in the next 12 months. Labour costs were widely cited as a challenge by Welsh firms.
Businesses in the East Midlands were the most pessimistic, the report found, with confidence plummeting from -11.4 to -22.3 on ICAEW's Business Confidence Monitor (BCM) index, as the region's greater dependence on production and logistics left companies more exposed to the volatile global trading environment.
Meanwhile, companies in Scotland (2.1 in Q1 to –21.1 in Q2) and the North West (9.9 in Q1 to –14.3 in Q2) recorded the largest drops in confidence. In Scotland, the Iran War and subsequent closure of the Strait of Hormuz pushed up energy and oil prices, leading to a steeper fall in confidence than the UK-wide decline.
Only Yorkshire and the Humber recorded a positive confidence reading (2.1) with sentiment now negative in every other nation and region surveyed. Projected increases in domestic sales and exports likely shielded the region from the conflict, the Institute said, though these expectations being realised will hinge on the future US-Iran relations.
With the conflict in the Middle East ongoing during the survey period, geopolitical risks were the most-cited challenge to business performance in most parts of the country. They were most prominent in the West Midlands (71%), reflecting the region's heavy exposure to manufacturing and exports, followed by London (68%) and South East (67%).
Following the closure of the Strait of Hormuz, energy costs were highly reported as a problem area of businesses, particularly in the East Midlands (68%), reflecting its energy-intensive manufacturing and transport sectors.
Of the other challenges, firms in the North East (70%) and Yorkshire and the Humber (66%) said labour costs were a growing challenge, while late payments – at a five-year high nationally – were cited by nearly a third of firms (28%) in Yorkshire and the Humber.
Robert Lloyd Griffiths, ICAEW Director for Wales, said:
“Despite a decline in business confidence in Wales, it's pleasing to see that domestic sales are forecast to increase in the next year, demonstrating optimism among our businesses.
“From Caerdydd to Clwyd, Wales is strongest when we all work together. We look forward to speaking to colleagues in the new Westminster government and the Senedd to deliver growth and prosperity for the Welsh economy.”
