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Welsh business confidence grows for second consecutive month

(Adobe Stock)

Business confidence in Wales rose six points during May to 26%, the second consecutive month of growth, according to the latest Business Barometer from Lloyds Bank Commercial Banking.   

Companies in Wales reported higher confidence in their own business prospects month-on-month, up four points at 31%. When taken alongside their optimism in the economy, up nine points to 20%, this gives a headline confidence reading of 26%.  

Welsh businesses identified a range of growth opportunities for the next six months, including evolving their offering with new products or services (36%), hiring new employees and investing in the development of their existing teams (33%) and introducing new technologies (24%). 

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

A net balance of 26% of businesses in the region expect to increase staff levels over the next year, up 10 points on last month.   

Overall UK business confidence increased by five points during May to 38% – its highest level since February. Firms’ outlook on their future trading prospects rose three points to 42%, and their optimism in the economy increased seven points to 33%. The net balance of businesses planning to create new jobs also increased by 11 points to 37%.  

Every UK region and nation reported positive confidence readings in May. London (up 23 points to 63%), Scotland (up 14 points to 42%) and the North West (up 12 points to 44%) reported the largest increases month-on-month, with London now the most optimistic region overall. The East of England, which experienced a 20-point dip in confidence in the last month, is now the least optimistic overall, at 14%. 

Dave Atkinson, regional director for Wales at Lloyds Bank Commercial Banking, said: “Confidence among Welsh businesses has fluctuated over recent months, so it’s reassuring to see the growth we saw in April continue in May. With warmer weather on the horizon, firms in the tourism, hospitality and retail sectors in particular will be looking forward to a busy time ahead. 

 “It’s important that businesses like these are prepared for the increase in footfall. Strong working capital management – ensuring that more funds than necessary aren’t tied-up in the day-to-day running of a business, for example in excess stock, or in late, unpaid invoices – will be vital to ensuring they can be flexible and respond to the spike in demand.” 

From a sector perspective, retail confidence fell two points to 27%, remaining lower than the all-sector average of 38% in the last three months. The confidence level is also the lowest since March 2021 as pressure on household real incomes weigh on spending prospects. In contrast, there was a 21-point rise in construction to 54%, while manufacturing sentiment remained resilient, up two points to 45%. Confidence in the services sector reached a three-month high, increasing 4 points to 36%. 

Hann-Ju Ho, Senior Economist Lloyds Bank Commercial Banking, said: “Business confidence improved this month and firms in general seem able to rebuild some of their margins through price increases. However, they also report several challenges ahead, including concerns around higher costs and an economic slowdown. More immediately, consumer-facing industries, such as retail, are not feeling the same confidence uplift amid the widespread reports of a squeeze on household incomes.”