Welsh businesses report stronger growth in turnover and gross profits in the 12 months up to Q3, 2010, than firms across the rest of the UK, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
Seventy senior business professionals in Wales were interviewed and recorded a Confidence Index score of 22.4 in third quarterly BCM survey of 2010. The Welsh Confidence Index weakened by a marginal 3.2 points this quarter and is now close to the UK average of 21.5.
David Lermon, ICAEW director for Wales, said: “The Q3 monitor confirms the positive outlook for businesses in the previous quarter continued with turnover and gross profits rising and forecasts for the next 12 months also improving.
“Firms are also projecting a rise in the number of jobs being created in Wales, which is against a background of fewer employees being taken on in the UK a whole.
“Employers are also expecting headcounts to continue to rise which is pleasing, although there is likely to be a severe impact on jobs in the public sector in the next few years which will dampen consumer demand for goods and services, hitting some businesses hard.”
The monitor reveals that Welsh businesses reported stronger annual growth in key performance indicators than firms across the rest of the UK. Turnover rose 4.2% over the last year, while gross profits increased 3.6%, both notably above the UK averages of 1.6% and 1.7% respectively.
Expectations for turnover and profits over the next 12 months have also strengthened since last quarter, with turnover growth forecast to rise from 5.0% to 5.5%, and gross profits growth forecast to rise from 4.6% to 5.6%. This is also a more positive picture than for the UK as a whole, where expectations of future turnover and profits softened in Q3 2010. Robust annual growth in both exports and domestic sales is also reported this quarter.
However, there are high profile reports which are considerably less encouraging, notably the prospect of Welsh Language Channel S4C losing as much as 24% of its government grant over the next four years.
In Wales, capital investment growth contracted by 0.5% in the 12 months to Q3 2010. This is marginally worse than in the UK as a whole, where annual capital investment growth was flat over the year. Growth in investment in research and development was also marginally behind the UK as a whole, at 0.2% compared to 0.8%.
Welsh businesses are expecting to increase their capital investment and research and development budgets over the coming year, with an expected increase of 2.0% and 1.1% respectively, broadly in line with forecasts for the UK as a whole (2.0% and 1.4%).
Cuts to the Welsh Assembly Government Department for Economy and Transport, which provides grants for capital investment to businesses, could hinder investment plans in Wales, it is feared.
The proportion of Welsh businesses reporting customer demand to be a greater challenge to business performance than 12 months ago has fallen to under one third (28%) this quarter, down from 42% in Q2 2010 and 54% a year ago. This is the fifth consecutive quarterly decline in Wales. Nearly four in ten firms across the UK as a whole (37%) report this trend this quarter.
This quarter, the proportion of businesses in Wales reporting access to capital to be a greater challenge than 12 months ago is close to the level seen before the worst of the credit crunch. Fewer than one in five firms (18%) report this trend in Q3 2010, compared to 40% a year ago. Although bank lending is reported to be constrained, other ICAEW work has found demand for new debt to be limited as firms work to manage their costs by other means.
Firms in Wales report headcount up by 0.5% over the year to Q3 2010. This is the first time employee numbers have expanded since Q4 2008, and compares favourably to the UK as a whole where employment has declined by 1.3%. Welsh businesses are also expecting to hire 1.2% more employees over the next 12 months. Electronics giant Sharp announced a £30m investment at its Llay factory, with the potential to create hundreds of jobs as the firm doubles production of solar cell modules, while construction of one of the world’s largest offshore wind farms in North Wales is hoped to generate 1,000 construction jobs.
Wales will, however, be hit by upcoming public sector spending cuts. Public sector spending accounts for about 62.8% of GDP in Wales. Significant job cuts within the police, Welsh NHS, universities and local authorities are on the horizon and will inevitably lead to a contraction in consumer demand for goods and services.
Geraint Davies, partner at Grant Thornton in Cardiff, said: “These figures are excellent news for Wales, where businesses have achieved above average growth in turnover and profits. That said, the looming public spending cuts are likely to have a bigger impact in Wales than in most other parts of the UK, so it will be interesting to see what picture emerges as the squeeze takes effect.”
Michael Izza, CEO of ICAEW added: “
UK businesses who came through the recession are now facing the challenge of surviving the recovery. They still don’t know what the future holds and are uncertain about how the mood of fiscal austerity will impact the economic recovery. Government needs to deliver on its commitment to ensure Britain is open for business while taking the tough decisions required to tackle the deficit.”
