Business confidence in Wales has soared to hit the highest rate of anywhere in the UK, a new survey of business leaders has found.
Sentiment among chartered accountants in Wales reached 26.1 on ICAEW’s Business Confidence Monitor in Q3 2024, up from 5 in the previous quarter. The spike in sentiment – the largest of anywhere in the UK – was likely due to expectations of strong domestic sales and hopes that a Labour Government in Westminster will boost public investment in Wales, ICAEW said.
Welsh businesses forecast a significant uplift in domestic sales growth to 6.3% over the next year, the joint-highest in the UK, the survey found. Strong sales expectations in the energy and water, construction and IT and communications sectors is likely feeding into the strong confidence reading. Nevertheless, annual domestic sales growth declined significantly in what the report said was an “unspectacular year”, falling below the historical average for Wales.
In the UK overall, business confidence fell for the first time in a year to 14.4 on the index. The fall was likely driven by mounting concerns over the tax burden and weaker exports growth, while investment remained low, ICAEW said.
To boost confidence, the Westminster Government should use the upcoming Budget as an opportunity to conduct an urgent review of the UK’s tax system and introduce reforms to stimulate economic growth, build confidence and drive investment, ICAEW said.
Robert Lloyd Griffiths, ICAEW Director for Wales, said:
“I’m very pleased to see that business confidence is higher in Wales than anywhere else in the UK, and with such a strong spike in sentiment our companies are clearly sensing that a more collaborative working relationship between the Welsh Government and their colleagues in Westminster will result in brighter days ahead.
“The promise of investment for Wales is likely to have delivered this boost in confidence, as it would have a huge impact on our country. However, as we head towards the Chancellor’s first Budget later this month, it’s vital that both Governments work together to deliver policies to grow the economy and provide stability.”
Exports growth declined in the quarter, lagging the national average, and even though an uptick for the next 12 months is expected, the rise would still be below the historical average. Welsh economic output is somewhat dependent on the manufacturing and energy and water sectors, both of which have seen “lacklustre” exports growth in the quarter, weighing on the outlook for Wales, ICAEW said.
However, the number of companies citing regulatory requirements as a growing challenge fell sharply to 27%, with the election of a Labour government likely to have eased concerns, ICAEW said. Customer demand is now the most prominent issue, cited by 48% of businesses, likely a reflection of below-average domestic sales growth.
Cost pressures have also declined, and Welsh businesses reported that input price inflation softened for the second quarter in a row, with a further decrease expected in the coming year. Selling price inflation continued to ease in the year to Q3 2024, although price growth was still double the historical average.
Consequently, profits growth halved, although the rate is expected to increase next year.
Employment growth in Wales outpaced the national average, with a further above-average increase forecast, while salary growth is also expected to outpace almost all other parts of the UK.
Meanwhile, capital investment slowed quarter-on-quarter, though growth was broadly in line with the national average.
