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Business confidence in Wales falls but firms eye growth

Business confidence in Wales fell 14 points during May to 18%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in Wales reported lower confidence in their own business prospects month-on-month, down 14 points at 28%.  When taken alongside their optimism in the economy, down 15 points to 7%, this gives a headline confidence reading of 18%.

Welsh businesses identified their top target areas for growth in the next six months as investing in sustainability (27%), evolving their offer (26%), and introducing new technology (25%).

The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

A net balance of 8% of businesses in the region expect to reduce staff levels over the next year, a significant change on April when a net balance of 21% of firms planned to create new roles.

Overall UK business confidence dropped five points to 28% in May. Despite the dip, every UK nation and region report a positive confidence reading.

As the country celebrated the Coronation, London reported the highest levels of business confidence at 43% (down four points on last month), followed by the North East at 35% (down six points month-on-month). The West Midlands, South East and South West, also reported high readings in May, all at 30%.

Firms remain optimistic about their own trading prospects, with a net balance of 34% expecting business activity to increase over the next 12 months, down just five points on last month.

David Atkinson, regional director for Wales at Lloyds Bank Commercial Banking, said: “Despite the drop in business confidence, it’s fantastic to see firms in the country remaining resilient and confident in their own business prospects as they identify sustainability as an avenue for growth.

“Going green isn’t just the right thing to do, it can unlock new revenue streams and help to boost the bottom line. We have a host of solutions available for Welsh businesses, such as our Clean Growth Financing Initiative to support firms on their net zero journey.”

Confidence among manufacturers increased to a one-year high of 40% (up from 29%), while retail registered a more modest two point rise to 26%, and construction remained robust at 34% despite its monthly nine point decline. Services confidence, however, fell back to 26% from 36%, almost erasing last month’s rise. Overall, confidence across the broad sectors remains above levels at the start of the year.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “As the economic environment remains challenging, compounded by stubborn inflation and higher wage pressures, business confidence has dipped slightly this month as firms feel cautious about the wider economy and their own trading prospects.

“However, while firms’ trading prospects and economic optimism both eased back, they still remain in positive territory as the UK has avoided an outright contraction in GDP – indicating a certain amount of underlying resilience in the economy.”