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Business Confidence in Wales Remains Above the UK Average

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Business confidence in Wales remains above the UK average, though has continued to weaken as companies face challenges from staff shortages and rising prices, a survey of chartered accountants has found.

ICAEW’s Business Confidence Monitor for Wales for Q2 2022, published today, found that at 22.3 sentiment remains above the UK average but nevertheless has declined. Welsh businesses are still operating in a high-sales environment as they continue to recover from the pandemic, but acknowledge the challenges from cost pressure and staff turnover they face – and the impact this could have.

Amid the increase in the cost of living, and last week’s announcement that inflation had hit 9%, ICAEW said the survey suggested that targeted, strategic financial measures were needed, to relieve households and stop issues spilling further into the economy.

Challenges ahead

The nature of challenges faced by Welsh businesses have changed as sales have grown, with most difficulties now related to supply-side pressures.

Half of businesses surveyed said staff turnover was a growing challenge, the highest rate of anywhere in the UK and a record level for Wales. The availability of management and non-management skills were  growing challenges for Welsh companies, cited by 23% and 42% respectively.

Businesses in Wales have not been immune to price increases. Input price inflation was 4.5% in the year to Q2 2022, the highest rate in the UK along with Northern England and Yorkshire and the Humber. However, rather than absorbing these higher costs, companies expect to pass them on to customers, and consequently a 2.9% price increase is planned for the next year.

Although transport problems have eased, they remain a widespread growing challenge for Welsh businesses, likely because of labour shortages and Brexit-related frictions, and were reported at a level higher than the historical average.

The proportion of businesses citing the tax burden as a growing challenge was higher in Wales than any other part of the UK.

Domestic sales and exports both increased at faster rates in Wales than elsewhere in the UK despite the decline in confidence. Companies expect both to slow in the year ahead.

Salaries in Wales have grown by 3.5% in Q2 2022 in response to staffing and recruitment difficulties, the BCM found, the sharpest increase in 15 years. They are forecast to grow by 3.7% in the coming year, while employee numbers are set to grow by 4.2% year on year.

Robert Lloyd Griffiths, ICAEW Director, Wales, said:

“After a period of record optimism, business confidence in Wales is declining, with challenges from inflation, staff turnover and skills availability threatening future growth.

“While none of these problems are of the government’s making, they must understand the emotional and financial toll on people and families. The Chancellor should work with the Welsh Government to address the high cost of living with targeted, strategic financial measures to prevent disastrous consequences for people’s standard of living and the amount of spending in the economy, which could result in real pressure on businesses.”

In the UK, business confidence fell for a third quarter in a row, amid concerns on the tightening of the economy and rising inflation. Confidence for the quarter was at 18.6 on the index, down from its peak of 47 three quarters ago. Cost pressures and staff shortages were hampering expectations of a more positive outlook, ICAEW said.