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Business confidence in Wales has improved beyond pre-pandemic levels, however current economic challenges continue to impact firms, a survey of chartered accountants has found. ICAEW’s Business Confidence Monitor for Wales for Q2 2023 stood at +12.4.

This was higher than the º£½ÇÊÓƵ average (+6.1), and the average for the decade before the pandemic in Wales (+6.5). Yet, rising interest rates and inflation continues to present economic challenges and inhibit growth for Welsh firms. The ICAEW is calling on both Welsh and º£½ÇÊÓƵ governments to produce a long-term growth plan to boost confidence among firms.

The survey found that capital investment was weaker in Wales than any other part of the º£½ÇÊÓƵ. Capital investment was at 1.4% in Q2 2023, but is expected to decline to 0.9% in the year ahead. However, research and development budgets have risen to 2.2%, faster than the º£½ÇÊÓƵ average of 1.6%, with a slower 0.9% rise expected in the year ahead.

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Businesses in Wales have not been immune to price increases. Input price inflation reached its highest point since the survey began at 7.5%, outstripping other parts of the º£½ÇÊÓƵ, and likely to impact Wales’ manufacturing and engineering sector.

Selling prices rose to 5.1% - a record rate for Wales - but are expected to ease to 2.7% in the year ahead, the survey found. In terms of profits, these grew 4% year-on-year in the second quarter in Wales and are expected to rise by 4.5% over the next 12 months, weaker than the º£½ÇÊÓƵ average of 4.9%.

Domestic sales and export growth both rose in the 12 months to Q2 2023. Companies expect both to grow in the year ahead. Welsh firms cited customer demand, regulatory and late payments as pressing concerns, as well as access to skills and staff retention.

Salaries in Wales have grown to a record high of 4.5% in Q2 2023, the BCM found, although staff levels increase by a lower rate compared to the º£½ÇÊÓƵ. These are both expected to reduce next year.

Robert Lloyd Griffiths, ICAEW Wales director, said: “It’s good to see another improvement in business confidence in Wales, but against the backdrop of high inflation and spiraling costs, many businesses will continue to negotiate a fragile tightrope in their bids for growth.

“I’m sure our business leaders will continue to focus on working together to grow the economy in Wales in spite of the challenges we face. It’s time for the Welsh and º£½ÇÊÓƵ governments to work together to deliver a growing and resilient economy which enables businesses of all sizes to operate effectively.”