Business confidence in Wales has increased for the first time in 15 months as businesses continued their recovery, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
In the second quarter of 2011 the confidence index rose to 4.6 – an encouraging turnaround from -6.7 in first three months of 2011. Business confidence had been on a downward trend since the first quarter of 2010 when an index score of 28.7 was recorded.
Despite the improvement in confidence there remains continuing concerns over the labour market in Wales and capital investment is expected to weaken during the next 12 months, according to the survey of 70 senior business professionals.
David Lermon, Wales director of ICAEW, said: “It is pleasing to note that business confidence in Wales has bounced back after a downward trend since the start of 2010. But it is clear that growth is still not back to pre-recession days, although there is progress in the right direction.
“Businesses have increased capital investment over the last 12 months although is forecast to slow considerably over the next year. There remain continuing challenges for many businesses because of pressure on consumers. There are concerns over jobs, particularly in the public sector, and high inflation combined with low growth in wages mean household spending power is down.”
Geraint Davies, partner at Grant Thornton in Cardiff said: “The survey shows that business confidence is moving in the right direction. The growth in turnover and gross profits is encouraging but the levels of growth are still well below pre-recession levels.
“Overall the trends suggest a steady but sluggish recovery in Wales rather than a fast bounce back. However once the new Welsh Government administration settles in, there may be a further recovery in confidence.”
The key findings of the latest BCM:
In the second quarter of 2011 firms report turnover to be 3.1% higher than 12 months ago, up from 0.3% growth reported in the same quarter last year. Similarly, gross profits growth has risen from 1.4% in the 12 months to Q2 2010 to 3.6% this quarter. While these trends are encouraging, the levels of growth reported are roughly half those typically seen before the recession.
The rate of turnover growth expected over the coming year is also weaker than was typical pre-recession. Firms in Wales expect their turnover to grow by 4.2% over the next 12 months. Forecasts for annual growth in gross profits and sales volumes also remain below pre-recession norms at 3.7% and 4.1% respectively. On balance BCM points to a slow but steady economic recovery in Wales rather than a sharp bounce back to trend growth.
The monitor warns that expected employment growth has softened over the past year in Wales. In Q2 2010 businesses expected their number of employees to grow by 2.5% over the following 12 months. This quarter, employment growth of only 0.9% over the next 12 months is expected. This points to ongoing weakness in the Welsh labour market and suggests that labour market recovery will be sluggish.
The trends emerging in BCM are in line with warnings from organisations such as the trade union Unison which said that as many as 52,000 jobs – half in the private sector – may be lost in Wales as a result of government austerity measures. The union also warns that there is little scope for significant job creation in the private sector. However, there has some potentially more positive news for Welsh jobs. Tourism Partnership North Wales hopes to encourage more people to take activity holidays in the region, potentially creating 1,000 jobs, and Jaguar Land Rover is considering Wales for a new engine plant.
This quarter, Welsh businesses report capital investments have expanded by 2.0% over the last 12 months – the highest rate recorded since Q1 2009. However, they only expect growth of 0.4% over the coming 12 months. Through 2010 firms in Wales typically reported planned growth of around 2% in their capital investment budgets.
This trend may in part reflect the Assembly Government’s decision to cut back on business grants. This policy has been criticised in the wake of evidence that Scotland is attracting substantial inward investment projects by continuing its grants policy. Further, it remains to be seen whether promises of support for business made by the four main political parties in the run-up to the Welsh Assembly elections will be fulfilled by the new administration.
For further information please visit icaew.com/bcm
