Business confidence in Wales is the lowest in the UK as companies face a cost of doing business crisis.
According to a quarterly survey of chartered accountants, Welsh businesses are the least confident in their prospects for the coming year.
The ICAEW’s business confidence monitor (BCM) for Wales for Q3 2022, found that sentiment had plunged into negative territory as companies faced challenges from input price inflation, staffing levels and skills shortages.
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The survey reported that input prices rose by 5.4% in Wales, the fastest growth rate since the BCM began, due to ongoing supply-chain problems and Russia’s invasion of Ukraine.
Energy and commodity prices have dramatically increased, particularly affecting Wales’ manufacturing sector.
Staff turnover was also a greater challenge in Wales compared to other parts of the UK, affecting 57% of all Welsh firms - the highest proportion of any UK nation or region.
The availability of both non-management and management skills is also a growing issue, impacting 51% and 35% of Welsh firms respectively, with rising labour costs as a result of challenges with recruitment.
28% of Welsh businesses cited transport problems,which is higher than the historical average and particularly bad for the country’s manufacturing and engineering sector.
While 37% of firms said the tax burden was a growing challenge.
Despite the nosedive in confidence, more positively Welsh export growth outpaced the rest of the UK, growing by 5.6% in the year to Q3 2022.
The BCM said the figure was striking in the wake of Brexit difficulties, given Wales is more reliant on exports to the EU than other parts of the UK.
Domestic sales growth also comfortably increased by 6.2% over the past 12 months, more than twice the historical average for Wales.
However, both domestic sales and exports growth are expected to slow to 5% and 3.9% respectively in the next year.
Welsh firms have also increased their selling prices to the highest rate in the UK at 3.9% year-on-year with a further 4% rise forecast.
Profits growth was maintained so Welsh businesses increased their investment spending, with research and development budgets up by 3.8% over the past year.
ICAEW said households and companies would need support in the short-term to get through the next few months amid soaring energy prices and high inflation.
ICAEW director for wales Robert Lloyd Griffiths said: “With business confidence lower in Wales than in any other part of the UK it’s clear that cost inflation, skills shortages and staff turnover are having an impact on the Welsh economy.
“High energy and commodity prices in particular have affected our manufacturing sector and show no signs of falling soon.
“With inflation running at levels not seen for 40 years, ministers at Cardiff Bay and Westminster must work together to provide targeted support for struggling businesses and households to keep the lights on this winter.”
Across the UK, business confidence fell into negative territory with sentiment at -5 on the index, down from 47 a year ago. Higher costs and significant skills shortages weighed down expectations despite a strong sales performance, the ICAEW said.
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