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Welsh business confidence steady ahead of Omicron impact

Welsh flag (Adobe Stock)

Business confidence in Wales fell one point during December to 36%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

Companies in Wales reported higher confidence in their own prospects month-on-month, up three points at 47%.  When taken alongside their optimism in the economy, down six points to 24%, this gives a headline confidence reading of 36%.

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

The survey captured responses between 26th November and 10th December. The first two cases of Omicron in the UK were confirmed on 27th November and nations began announcing the reintroduction of restrictions in the week commencing 6th December.

A net balance of 29% of businesses in the region expect to increase staff levels over the next year, down eight points on last month.

Overall UK business confidence was unchanged from November’s reading at 40%. While confidence remained above the long-term average (28%), during the second week of sampling when the Omicron variant emerged, confidence fell to 32%.

Despite potential challenges from the new Covid-19 variant on the horizon, firms remained positive about their future trading prospects, up four points month-on-month to 43%. The net balance of businesses planning to create new jobs also increased by three points to 33%. Optimism in the economy overall remained positive at 38%, down just three points on November’s result.

Every UK nation and region maintained a positive overall confidence reading in the December barometer, with four reporting a higher reading than last month. The North East (up 13 points to 58%), North West (up 14 points to 48%), Yorkshire and Humber (up four points to 35%) and East of England (up 12 points to 50%) all had stronger confidence readings month-on-month, with the North East and London (57%) the most optimistic overall.

Amanda Dorel, regional director for Wales at Lloyds Bank Commercial Banking, said: “Businesses in Wales had a real sense of confidence in their own prospects when the survey was conducted, but the emergence of the Omicron variant will be challenging for even the most resilient of firms.

“Coronavirus restrictions pose new headwinds but businesses have proven adaptable over the past 12 months and that resilience will stand them in good stead heading into 2022. As ever we’re here to support companies across Wales as they take on new challenges and opportunities.”

In the industry sectors, construction recovered to 39% from November’s seven-month low of 28%, following a minor easing in supply-chain disruptions. Despite a slight fall in confidence in manufacturing to 40%, trading prospects in the sector have remained higher than the whole economy throughout this year.

There were also small declines for retail (43%) and services (39%) ahead of the festive period. There have been some marked differences in these sectors in recent months, with notable strengths in the professional services sector (including finance) and in IT/communications. However, the current three-month average sentiment among hospitality firms is at its lowest level (24%) since the first quarter of the year (4%). This has been fuelled by a significant monthly drop of 48 points to 6% between November and December.

Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, said: “It is a challenging end to 2021 as businesses are now having to adapt to the new Omicron variant and resultant restrictions across the UK. Nevertheless, business confidence remains resilient and above the long-term average due to a rise in trading prospects, while pay and price expectations continue to be elevated.

“Businesses face into a number of headwinds and challenging trading conditions, including higher interest rates, as we move into 2022, but many remain resilient and hopeful that acute downside risks are not realised.”