Confidence among business professionals in Wales has improved only marginally in the last three months, failing to keep pace with the rest of the UK, according to the latest ICAEW UK Business Confidence Monitor (BCM).
A total of 70 senior business professionals in Wales were interviewed and the UK Business Confidence Monitor (BCM) from Institute of Chartered Accountants in England and Wales recorded a Confidence Index score of 17.7, a rise of just 0.8 points from the third quarter of 2009. Wales is now nearly seven points below the UK average although year on year Wales’ Confidence Index score has increased more than the UK average.
Over the months of June, July and August more than a quarter of all UK job losses (24,000) occurred in Wales. However, firms in Wales are more optimistic about employment prospects over the coming year. They expect average number of employees to increase by 0.9% over the coming 12 months, in line with the UK average.
David Lermon, ICAEW director for Wales, said: “Results show clearly that while business confidence is improving, the speed of that improvement in Wales is slower than across many other parts of the UK.
“Job losses in Wales are running faster than other parts of the UK although the survey suggests that firms are optimistic that they will be taking on more employees during the next year.
“Although jobs are being lost there has been some good news with the opening of the £675m St David’s 2 shopping development in Cardiff, which has created considerable employment, and in North Wales Airbus is investing hundreds of millions of pounds in its business at Broughton.
“But public sector spending accounts for a higher proportion of overall economic output in Wales than the rest of the UK, so Wales is likely to be hit harder from the UK Government spending squeeze, imposed by Whitehall.”
Steep contractions in several key indicators of business health are expected to be followed by strong improvements over the next year. Having seen gross profits decline by 4.2% over the last 12 months – the steepest decline for any part of the UK – firms in Wales now expect surpluses to grow by 5.2% over the coming 12 months.
Sales volumes, which contracted by 4.7% over the last year – also the largest contraction in the UK – are now forecast to grow by 4.9%, the fastest regional growth rate forecast this quarter. If delivered, some of this expected increase will be the result of a strong rebound in trading following a particularly harsh decline. The positive outlook for sales is also reflected in the fact that the region’s Confidence Index score has increased by 70 points since Q4 2008, which is more than the UK average.
Welsh firms expect turnover to rise by 5.4% on average over the coming year, the strongest rate of growth forecast by any part of the UK this quarter.
Business professionals in Wales also expect capital investments by their own firms to pick up over the coming year. A 2.5% increase is forecast, reversing the 1.4% contraction seen year to date.
Reflecting the fact that output is currently operating close to 6.0% below capacity, firms in Wales expect price pressures to remain relatively weak. After seeing 0.7% growth over the last 12 months, Welsh businesses expect selling prices to rise by 0.9% over the coming year. For the first time, expected price growth is above expected growth in input prices for the coming year, which is at a record low rate of 0.4%.
Wales is likely to be disproportionately affected by an expected period of fiscal consolidation, as public spending accounts for roughly 67% of Welsh output, second only in the UK to Northern Ireland. The NHS – which employs around 90,000 staff in Wales, making it the largest single employer in the region – has already warned of cuts in jobs and services because of funding pressures.
Further, firms in Wales remain considerably more likely than in the rest of the UK to complain about the level of government support for business. Roughly one in seven firms (14%) report level of government support for their business to be a greater challenge to performance than a year ago, a larger proportion than any other part of the UK and compared to a UK average of 6%.
Michael Izza, Chief Executive of the ICAEW, said: “The UK economy is undoubtedly in better shape than this time last year and the improvement in confidence shows the relief businesses feel to have kept their heads above water. Although we are still on track for a return to economic growth, the recovery is very fragile and will take time. Tightening of fiscal policy, the return to the 17.5% VAT rate, continued difficulties accessing finance and a budget Christmas by consumers are all potential threats to this recovery.
“Businesses are backing the recovery but banks are not. Access to capital continues to be a problem despite government reassurances and a willingness to invest by companies. We cannot emphasise enough the fragility of the recovery. This month’s Queen’s Speech and the upcoming Pre-Budget Report are effectively the starting guns for next year’s General Election. Policy makers need to be careful that the measures they announce support the recovery rather than unintentionally threaten it.”
For more information visit to www.icaew.com/bcm
