Business confidence in Wales fell 34 points during March to -5%, its first negative reading since February 2021 and the lowest of all UK nations and regions, according to the latest Business Barometer from Lloyds Bank Commercial Banking.  

Companies in Wales reported lower confidence in their own business prospects month-on-month, down 27 points to 0%.  When taken alongside their optimism in the economy, down 41 points to -10%, this gives a headline confidence reading of -5%.

Despite the drop in confidence, businesses reported plans to target new growth opportunities in the next six months, including evolving their offering with new products or services (28%), investing in their teams (27%), and diversifying into new markets (20%).

The Business Barometer, which questions 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

A net balance of 6% of Welsh businesses expect to reduce staff levels over the next year, down 19 points from February, when a net balance of 13% had planned to make new hires.

Overall UK business confidence dropped 11 points during March, from 44% to 33%. Firms’ outlook on their future trading prospects (down from 45% to 34%) and optimism in the economy (down from 43% to 32%) both also fell by 11 points on February’s reading. The net balance of businesses planning to create new jobs decreased slightly, by six points to 32%.

Every other UK region and nation reported positive confidence readings in March. Only London (up 13 points to 60%), Yorkshire and the Humber (up six points to 57%) and the North West (up one point to 45%) reported a higher reading than last month, with London now the most optimistic region overall.

Dave Atkinson, regional director for Wales at Lloyds Bank Commercial Banking, said:

“Welsh businesses have undoubtedly been significantly affected by the impact of rising prices here in the UK. Ongoing cost-of-living pressures have led to more cautious consumer spending, which has had a knock-on effect for businesses across the country, particularly those in the tourism and hospitality industry which plays such a key role in the Welsh economy.

“We don’t know how long these challenges will remain, but we have seen the resilience of our Welsh business community throughout the past two years and we expect this to continue. We’ll be by the side of firms to help them navigate these challenges and look ahead with optimism once more.”

From a sector perspective the impact of the war in Ukraine appears to have had the greatest impact on manufacturing and retail firms. Both sectors saw drops in confidence of 19% from February’s highs (to 35% and 28% respectively). From a manufacturing perspective confidence levels are now at their lowest since last summer, while retail has fallen to a one-year low.

In the other sectors, services dropped by six points (32%) while construction dropped eight points to 43%, but remained higher than at the start of the year.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: 

“March’s data shows UK businesses are facing significant challenges from the impact of Russia’s invasion of Ukraine in increasing economic uncertainty and ongoing inflationary pressures. Following encouraging improvements at the start of the year, March’s fall in confidence is therefore disappointing, but not surprising.

“There are positives with the fact that confidence remains above the long-term average and it appears for now that growth will moderate. But it is difficult to gauge what the full impact will be and therefore businesses have become more cautious.”