Business confidence in Wales has improved beyond pre-pandemic levels though challenges remain, a survey of chartered accountants has found. 

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Wales for Q2 2023, published today, found confidence rose again this quarter to 12.4, ahead of both the UK average (+6.1) and the average for Wales in the decade before the pandemic too.

However, confidence remains fragile and businesses face a number of challenges including rising interest rates and inflation. Input price inflation in Wales reached its highest point since the survey began, outstripping other UK nations and regions, and is likely to have an impact on Wales’s manufacturing and engineering sector.

Selling prices increased by 5.1% in the year to Q2 2023, a record rate for Wales, ICAEW said, though this is expected to ease as inflation slows.  Nevertheless, profits have grown by 4.0% year-on-year and are forecast to continue rising, albeit weaker than the UK average.

Domestic sales in Wales grew by 4.5% year-on-year, down from 6.2% in Q1 2023, with growth expected to continue at around the lower rate.  The survey found modest export growth, rising to 3.1% in the 12 months to Q2 2023, but the rate of increase is expected to strengthen to 4.8% in the year ahead, making growth in Wales the fastest in the UK.

Customer demand remains a growing challenge for businesses in Wales, despite easing to 24% since the previous quarter.  Regulatory and late payment issues also remain a pressing concern for businesses in the nation, though access to skills and staff retention continue to challenge companies in Wales.

Average total salaries grew by a record high of 4.5%, though staff levels increased by a lower rate than the UK average. Growth rates in both are expected to reduce next year.

Capital investment is weaker in Wales than in all other UK nations and regions, though R&D budgets have risen faster than the UK average.

ICAEW said that to boost confidence, the government must formulate a plan to deliver long-term growth by increasing the resilience of the UK economy and the transition to net zero, while enabling small businesses to operate more sustainably in a difficult economic environment.

Robert Lloyd Griffiths, ICAEW Wales Director, said:  

“It’s good to see another improvement in business confidence in Wales, but against the backdrop of high inflation and spiraling costs, many businesses will continue to negotiate a fragile tightrope in their bids for growth.

“I’m sure our business leaders will continue to focus on working together to grow the economy in Wales in spite of the challenges we face.

“It’s time for the Welsh and UK governments to work together to deliver a growing and resilient economy which enables businesses of all sizes to operate effectively.”

Nationally, business confidence remains lower than the pre-pandemic average but still positive amid a backdrop of high inflation and interest rates and record wage pressures, with sentiment at 6.1 on the index.