Business confidence in Wales remained high by historical standards despite falling for a second consecutive quarter, a survey of chartered accountants has found.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Wales, published found confidence at 28.1 on the quarterly index.

The high readings recorded for Q1 were likely derived from a strong sales performance, with both domestic sales and exports outpacing the UK averages over the past year. As an export-reliant nation, the confidence reading is likely a reflection of this. Companies expect overall domestic sales and exports growth to continue over the next 12 months and remain above their historical averages.

With the economy reopening, skills shortages have become prominent for Welsh businesses as challenges have evolved. The availability of management and non-management skills have both become more widespread issues – more than anywhere else in the UK. Both challenges have grown at a rate not seen since the survey began in 2004, and more than half of businesses said the availability of non-management skills was a growing issue.

Recruitment and retention, particularly in relation to HGV drivers, may also have been responsible for widespread transport problems in Wales, which were a growing concern for 39% of the businesses surveyed, ICAEW said. Brexit-related trading and regulatory requirements may also have had an impact.

Meanwhile, nearly half of businesses struggled with regulatory requirements – the highest proportion across the UK – with Covid-19 restrictions and difficulties complying with the new UK-EU trading framework the likely contributing factors.

Salaries are set to rise further this year after increasing over the past 12 months, the report said, while employment growth is expected to be higher in Q1 2023 than in the current quarter.

Input price inflation rose at the joint-highest rate in Wales since 2008, as businesses contended with price increases from suppliers. As a result, selling prices are expected to rise above the UK average, as businesses pass their increasing costs on to customers.

Consequently, businesses expect profits to increase by 5.3% in the year ahead, with the rise in sales and selling prices offsetting cost pressures.

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

“It’s good news for the Welsh economy that our businesses remain buoyant about their prospects for the year ahead, despite a decline in sentiment as companies grappled with the knock-on effects of the omicron variant.

“As our businesses bounce back and plan for the future, labour market shortages could be a real challenge as costs rise and customer demand grows.

“The government’s plans for levelling up could help boost the post-pandemic economic recovery, and we hope engagement with the private sector can play a key role in achieving growth.”