Business confidence in Wales is strengthening further despite public sector spending cuts, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
In the third quarter of 2011 the Business Confidence Index rose to 16.5 from 4.6. It is the second successive quarterly increase and the index for Wales is now at its highest since the third quarter of 2010 when an index score of 22.4 was recorded. Both in Wales and Scotland the Confidence Index is higher than in England.
The survey of 71 senior business professionals in Wales found gross profits rising by 2.5% and sales volumes 4.1% over the past year with capital investment also up.
But there is concern whether the outlook in Wales will remain positive as UK and Welsh Government austerity measures start to bite in the months and years ahead.
David Lermon, Wales director of ICAEW, said:
“Business confidence in Wales has continued to improve but there is concern that this may not be sustained because of spending cuts in the public sector being imposed by the both the Welsh Government as well as by Westminster.
“Capital investment has been rising since the start of 2010 and I’m particularly pleased to see the proportion of firms reporting that access to capital is a greater challenge, has fallen back to pre-recession levels, suggesting improved conditions.
“However, the huge rises in energy prices, together with food inflation and wage restraints will increase the pressure on household budgets and, therefore, spending power.”
Geraint Davies, partner at Grant Thornton in Cardiff said:
“The latest Business Confidence Monitor shows right across the country that businesses have a growing frustration at the lack of progress from the Government on making it easier to do business in the UK.
“Despite the introduction of the ‘one in one out’ rule for regulation and the reductions in Corporation Tax now and coming, businesses still see Government support and the tax burden as an increasing challenge over the next 12 months.”
The key findings of the latest BCM are:
Businesses in Wales have generally seen financial performance steady since the recovery which followed the recession. Over the 12 months to Q3 2011 turnover increased by 5.2%, a similar rate of growth to that recorded over the year to Q3 2010. Likewise, gross profits and sales volumes expanded by 2.5% and 4.1% respectively over the last 12 months, rates of growth broadly in line with those seen in the same period last year.
Exports expanded by 3.9% in the twelve months to Q3 2011 – a reasonably robust performance, although the rate of exports growth appears to be slowing in the region. The picture for exports in Wales is in line with that across the UK as a whole. Official data show that while exporters continue to benefit from weakness in exchange rates, stronger export growth at the start of the year is tailing off as the year progresses. The ongoing eurozone sovereign debt crisis also remains a concern for exporters.
Welsh firms report capital investment up over the year to date by an average 2.4%. There has been an upward trend in annual growth in capital investments since Q1 2010 when a 2.4% contraction was reported. Welsh capital investment growth compares favourably to that reported for the rest of the UK for the year to date. Across the UK as a whole, 1.6% growth in capital investments is reported.
Encouraging investment news comes from Gloucestershire-based engineering firm Renishaw, which in June bought the old Bosch plant in the Vale of Glamorgan as part of plans to expand manufacturing operations in the UK. The First Minister of Wales also pledged £10m to help businesses in new enterprise zones being set up across the country.
Further, the proportion of firms in Wales which report access to capital a greater challenge now than a year ago (19%) is back in line with pre-recession levels, suggesting improving conditions.
Firms in Wales report their number of employees to be up by 1.3% on average over the last 12 months. Reported headcount growth has been low, but positive, for all three quarters of 2011. Through most of 2009 and 2010 firms reported headcount contracting year on year.
Official data show that the Welsh labour market suffered heavily during the recession, as the unemployment rate rose from below 5% to over 9%, and the employment rate fell from an already relatively low 70% to around 67%. Recently improvements have been seen, though with public sector employment accounting for over a quarter (26.1%) of total employment, the overall outlook for jobs in Wales is mixed.
News on employment comes from Cwmbran in South Wales, where Torfaen County Borough Council has approved plans to redevelop an industrial site to include a new Morrisons store with a petrol station and a 60-bedroom hotel. This redevelopment will create up to 1,200 new jobs in the area.
For further information please visit icaew.com/bcm
