Businesses in Wales are now the most confident across the UK with profits and jobs expected to rise over the next year, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
In the first quarter of 2013, the Business Confidence Index jumped to 20.1 from 5.7, according to the findings of a survey of 62 senior business professionals across the nation.
Business confidence in Wales has remained in positive territory for the fourth quarter in a row with both turnover and profits rising over the past 12 months, indicating companies are seeing a slight improvement in trading.
And there is also better news on the jobs front with businesses expecting staff numbers to grow by 1.5% during the forthcoming year.
David Lermon, Wales director of the ICAEW director, which has around 3,000 members in Wales, said: “The latest results are positive with Welsh businesses believing that gross profits will rise by almost four per cent and jobs levels by 1.5% over the next year. There is cautious optimism amongst our members.
“But there is certainly no room for complacency with continuing uncertainty in the Euro zone. Increasing our economic output is key for future growth and prosperity in Wales. Members hope 2013 will mark the turning point for the Welsh economy.”
Alistair Wardell, Partner Grant Thornton Wales, said: “We are operating in a confidence-driven economy in which many large corporates have been paying down debt rather than investing in expansion, while many SMEs have been struggling to raise finance. However, recently in the local SME market we have seen a gradual increase in bank funding, partly driven by the government’s Funding for Lending Scheme, which is in contrast to what is being seen across the UK.”
“What we are hoping is that the increased confidence, the increased availability of funding and the increased competition between lenders that we are currently seeing will be the catalyst for companies to begin investing in the future.”
The key findings of the latest Wales BCM are:
Businesses expect modest growth ahead
Over the year to Q1 2013, turnover has risen by 3.8% while gross profits rose by 2.5%. These figures generally exceed those seen in recent quarters, suggesting that companies in Wales are experiencing a slightly improved trading environment.
Businesses expect to build on this performance over the coming year. Gross profit is expected to rise by 3.7% and turnover growth is predicted to remain in line with increases seen over the past year at 3.8%.
Export expectations are also positive, with businesses predicting 3.4% growth in 2013. However, the latest HM Revenue & Customs data show that Welsh goods exports declined over the year to Q3 2012, driven by falling exports to the EU. If businesses are to achieve the steady export performance they expect, this may require a substantial increase in exports to high-growth emerging economies outside the EU.
Labour market returns to modest growth
Following a fall in last quarter’s figures, Welsh businesses report that their employee numbers rose modestly by 1.2% over the 12 months to Q1 2013. This is supported by data from the Office for National Statistics showing that the unemployment rate in Wales fell to 8.4% over the three months to November 2012, down from 9.0% a year earlier. In a sign that the labour market may continue to improve, businesses expect that their staff levels will grow by 1.5% over the next 12 months.
With Welsh businesses managing to grow and anticipating improved performance in 2013, they feel more confident to expand capital investment. Businesses have increased capital spending by 2.1% over the past 12 months, and expect this spending to rise by 2.0% in the year ahead.
Regulatory requirements a growing challenge
Almost half (48%) of Welsh businesses report that regulatory requirements have become a greater challenge over the past year. This proportion was on an upward trend over 2012, from a low of 27% in Q3 2011, and is now at its highest level since Q1 2009. At the same time, government support for business is a greater challenge for 10% of companies, up from 5% at the same point a year ago, suggesting that businesses are experiencing rising regulation combined with reduced support from government.
The Controlled Waste Regulations impose new environmental standards on businesses, which could be contributing to the perception of a rising regulatory burden. In addition, a proposed Sustainable Development Bill, which will place a duty on the Welsh Government and public bodies to embed sustainable development principles within their strategic decision-making, could impose additional burdens on their private-sector contractors.