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Horizon of Rising Costs Dampening Small Welsh Business Optimism

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The latest Federation of Small Businesses (FSB) Small Business Index (SBI) showed an increase in cost of doing business in Wales, with 80.4% of small firms in Wales reporting increase in costs in the first quarter.

67.9% of firms cited rising fuel costs as the main reason for an increase in costs, followed closely by rising utility prices.

Despite increased cost concerns, the SBI also found a rise in small business confidence in Wales, with an easing of Covid-related restrictions in the first months of 2022. This followed national trends, which saw a general uplift across the UK following consecutive quarterly falls in the three final quarters of 2021.

Smaller businesses in Wales were the most likely to see revenue increased in Q1, as almost 50% of respondents in Wales reporting an increase in revenue, the largest share of any region. This is likely due to the differing degrees of restrictions ending in Wales, which may have shifted business activity.

The report also found a net balance of 13.4% of Welsh SME’s seeing growth in their employee headcount in Q1, continuing a positive growth trend that began in early 2021.

While firms expect employee numbers to continue to grow, a weak growth outlook is recorded amongst Welsh firms for 2022. Only 24.4% of Welsh businesses expect to grow over the coming 12 months. This figure is the weakest of any region or nation in the UK, possibly suggesting the tighter restrictions in Wales has had a lasting impact on small business confidence, along with lingering concerns over rising costs.

FSB Wales Chair, Ben Francis said: “I am pleased to see the resilience of small Welsh firms reflected in the data released today. It is clear that small businesses have consistently risen to the challenge presented by the pandemic, and the growth in employee headcount and revenue statistics released today is a welcome sign that this perseverance is paying off.

Despite this, it’s important to remember that businesses are still in a vulnerable place, with unprecedented rising costs impacting ability of Welsh businesses to grow.

Our recent report Building Business found that the majority of small businesses hope to grow moderately, to survive. The SBI data released today finds only 24.4% are expecting to, suggesting a disconnect between the aspirations of business and the realities of the increased cost of doing business.

With fuel costs, utilities and taxes eroding small business margins at a rate that many have not experienced before, many small firms are now facing multiple headwinds that threaten the growth of our economy. While this data reflects the first quarter, recent figures from the Office for National Statistics on falling GDP suggest a less than promising rebound for the economy.

That’s why FSB Wales is calling for local and national governments to align energies and effort to grow a sustainable and strong sector. This must be guided by a clear vision for the economy from Welsh Government that pulls together all the different strands of support for business and focuses on driving green growth.

It is only through a new shared purpose created between the different levels of governments, with a clear economic vision that we will be able to develop a strong recovery and grow our economy and support the small businesses that are the backbone of our communities.”