Welsh businesses are the least confident in the UK in their prospects for the coming year, a quarterly survey of chartered accountants has revealed.
ICAEW’s Business Confidence Monitor (BCM) for Wales for Q3 2022, published yesterday, found sentiment had plunged back into negative territory as companies faced challenges from input price inflation, staffing levels and skills shortages.
With firms facing a crisis from the cost of doing business, amid soaring energy prices and high inflation, ICAEW said households and companies would need support in the short-term to get through the next few months.
Key challenges for Welsh business
Input prices have grown at their fastest rate in Wales since the BCM began, as a result of ongoing supply-chain problems and Russia’s invasion of Ukraine. Energy and commodity prices have dramatically increased, particularly affecting Wales’s large manufacturing sector.
Staff turnover is a more of a challenge in Wales than any other part of the UK, affecting more than half of companies, the BCM found. Companies reported that the availability of both non-management and management skills are also growing issues, impacting half and a third of companies respectively, with labour costs on the rise as a result of challenges with recruitment.
A quarter of companies are having problems with transport, higher than the historical average and particularly acute for the country’s manufacturing and engineering sector.
The tax burden is now cited at as a growing concern by a third of companies, double the historical average.
Nevertheless, despite confidence being in negative territory, sales continued to grow. Welsh export growth outpaced the rest of the UK, while domestic sales growth was comfortably above the region’s historical average. The latter figure was striking in the wake of Brexit difficulties, given Wales being more reliant on exports to the EU than other parts of the UK, the BCM said, although both sales and exports growth are expected to slow.
In the wake of both rising costs and higher sales, Welsh businesses have increased their selling prices at the highest rate in the UK, with a further rise anticipated in the future.
Profits growth was maintained so Welsh businesses increased their investment spending, with research and development budgets up by 3.8% over the past year.
Robert Lloyd Griffiths, ICAEW Director for Wales, said:
“With business confidence lower in Wales than in any other part of the UK it’s clear that cost inflation, skills shortages and staff turnover are having an impact on the Welsh economy. High energy and commodity prices in particular have affected our manufacturing sector and show no signs of falling soon.
“With inflation running at levels not seen for 40 years, ministers at Cardiff Bay and Westminster must work together to provide targeted support for struggling businesses and households to keep the lights on this winter.”
In the UK as a whole, business confidence fell into negative territory, with sentiment at -5 on the index, down from its peak of 47 a year ago, with higher costs and significant skills shortages weighing down expectations despite a strong sales performance, ICAEW said.