Business confidence in Wales has returned to positive territory for the first time in a year, but remains weak at just above zero, a survey of business leaders published today has found.

ICAEW’s Business Confidence Monitor (BCM) for Wales, published today (Thursday 20 April 2023), put sentiment at 3.6 in Q1 2023, up from -13.6 previously, which while low, marks an increase for Wales and is slightly above the UK average of 2.5.

Welsh businesses reported strong domestic sales over the last year, rising to double the historical average for Wales. Growth is expected to ease in the year ahead, but at a more favourable rate than in the UK as a whole. [1]

Export growth in Wales saw the second slowest outturn across the UK, except for the North West of England. Although this raises concerns given that Wales is one of the most export-intensive parts of the UK, exports growth is expected to increase in the year ahead. [2]

Customer demand was the biggest challenge facing companies in Wales, the report found. With almost half of Welsh companies citing it as a problem, it was a bigger challenge in Wales than anywhere else in the UK. [3]

ICAEW said that to build on the confidence reading, the government must form an ambitious plan to inject resilience into the UK economy to boost business confidence and deliver long-term economic growth.

Robert Lloyd Griffiths OBE, ICAEW Director, Wales, said:

“It’s promising news that business confidence in Wales is beginning to show signs of recovery, with domestic sales above the UK average. However, sharp rises in input prices and salaries show Welsh businesses continue to face significant cost pressures from high inflation and global energy prices causing them to increase selling prices at a record rate.

“Although customer demand and recruitment also remain a challenge,  I’m optimistic that  resilient businesses in Wales will  experience a more successful year with stronger growth in both exports and profits expected.”

Although recruitment challenges have eased slightly, they are still widespread among businesses in Wales. The availability of non-management skills was a growing problem for four out of ten companies, the second highest proportion in the UK, behind Scotland. [4]

Profits grew modestly in Wales at 1.7% year-on-year, the slowest rise across the UK. However, this is predicted to improve with an expected 4.3% increase in the coming year.

Financial problems were cited as a bigger concern for companies in Wales than the rest of the UK, with a quarter citing bank charges and 35% reporting late payments as problems in the year leading up to Q1 2023.

Salaries in Wales grew sharply by 4.2%, reaching a joint record with the previous quarter. A slower raise of 3.5% is expected next year, but this would still be nearly double the historical average.

Companies were increasing their staff levels at a faster pace than the UK average, at 2.6%, but a slower rate of growth of 2% is planned in the coming year.

Input price inflation reached the highest rate recorded in Wales since the survey began in 2004, up 6.3% when compared to a year ago. A slowdown to 4.1% is expected in the 12 months ahead.

In response to cost pressures, selling prices in Wales have increased by 5%, the second highest increase in the UK behind the North East. A further rise of 3.7% is expected, which would be the strongest outlook across the UK

Profits growth has been low, at 1.7%, but stronger profits growth of 4.3% is expected in the coming year. [5]

Research and development spending in Wales achieved the slowest rise across all UK nations and regions; an increase of less than half a percent in the past year, with an expected rise of just under 1% in the year ahead. [6]

Almost two thirds of businesses in Wales were operating below capacity, representing a considerable increase in Wales and the second highest in the UK. As a result, capital investment rates are expected to slow in the next year. [7].

Nationally, business confidence returned to positive territory for the first time in a year but remains fragile amid a backdrop of economic volatility, with sentiment at 2.5 on the index.