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Welsh business confidence declines but optimism remains

Robert Lloyd Griffiths OBE, ICAEW National Director for Wales

Business confidence in Wales has declined for the second consecutive quarter amid financial challenges and wider economic uncertainty, a survey of business leaders has revealed.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Wales, published today, put confidence at -6.7 on the index for Q4 2023, a drop from -3.2 in the previous quarter and the lowest reading in the UK.

However, Welsh companies are optimistic about their prospects for the next 12 months and forecast that annual domestic sales growth will hit 5.5% during the forthcoming year, somewhat higher than the projected rate for the UK average. This would follow growth of 3.1% year-on-year in Q4 2023, which mirrors the historical average for Wales.

Export sales growth slowed markedly in the year to Q4 2023 at a rate weaker than Wales’s historical average. Although Welsh businesses expect export sales growth to increase, the projection remains lower than many other parts the UK and could be a concern for a nation that is more reliant on exports, the BCM found.

The Welsh confidence reading is likely to be, in part, related to financial challenges and wider economic challenges. More than a third of businesses surveyed said customer demand, was a growing concern, higher than the UK average.

Not far behind this challenge were the additional issues of bank charges and the tax burden, which were both cited as growing concerns by just under one third of business.

Both annual input price and selling price inflation are increasing at a slower rate for Welsh businesses than elsewhere in the UK, and it is thought it will ease further in the next year.  Should sales improve and cost pressures ease as predicted, profits growth is forecast by Welsh business to rise from 2.1% to Q4 2023 to 3.8% over the next 12 months.

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

“When I speak to Welsh businesses leaders, they tell me about the good work they are doing, but also the pressures they face. While this low confidence reading reflects the wider economic climate, I note that optimism remains, particularly in terms of sales growth. In a year when we will have a new First Minister and a likely general election, we need to see politicians in Westminster and Cardiff step up and fight for Wales.”

Nationally, business confidence rose marginally, but at 4.2 on the index, remained below pre-pandemic levels as customer demand issues and weakening sales growth took their toll on sentiment.

In its submission to the Treasury ahead of the Budget, ICAEW said the Welsh government should build an economy underpinned by certainty, clarity, stability, and introduce the right long-term incentives to influence investment, employment and growth.