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Welsh businesses start 2024 with confidence on the up

Business confidence in Wales rose eight points to 32% in January

Business confidence in Wales rose eight points during January to 32%, according to the latest Business Barometer from Lloyds Bank Commercial Banking

While companies in Wales reported lower confidence in their own business prospects month-on-month, down three points at 37%, their optimism in the economy climbed 18 points to 27%. Taken together, this gives a headline confidence reading of 32% (vs. 24% in December).

Welsh businesses identified their top target areas for growth in the next six months as introducing new technology (42%), evolving their products and services (40%), and investing in sustainability (29%).

A net balance of 31% of businesses in the Wales also expect to increase staff levels over the next year, down two points on last month.

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

Overall, UK business confidence rose nine points in January to 44% – its highest level since February 2022 and its strongest start to a year since 2016. Firms’ outlook on the overall UK economy rose ten points from 27% to 37%, while businesses’ optimism in their own trading prospects also climbed three points month-on-month to 51%.

Companies’ hiring intentions increased marginally, with 33% of firms intending to increase staff levels over the next 12 months, up four points on the month before.

London and the North East were the joint most confident parts of the UK in January – each posting a headline confidence of 62% – followed by the West Midlands (56%) and Yorkshire & the Humber (44%).

The East of England (38% in January vs. 45% December) and Northern Ireland (29% vs. 36%) were the only two regions to reporting declining levels of confidence. The majority of the data was collected before the December ONS inflation data was announced on January 17th.

Three of the four sectors tracked in the Barometer reported rises in confidence. The most significant increase was in services which accelerated 15 points to 45%, up from December’s 16 point drop. Manufacturing confidence also increased to 49%, while construction rose eight points to a 10-month high of 45%.

There was a more mixed picture in retail however, dipping three points to 41% with anecdotal evidence of weaker footfall and sales in December as shoppers hit the streets earlier than usual in November. Nevertheless, some companies still reported stronger sales over the festive period.

Sam Noble, regional director for Wales at Lloyds Bank Commercial Banking, said:

“It’s brilliant to see confidence among Welsh businesses bouncing back after a challenging few months. Many firms have battled a range of headwinds, not least the impact of rising costs, but are now turning their attention to capitalising on opportunities for the next year.

“While it’s encouraging to see firms prioritising adopting new technology and evolving their offerings, they also need to keep a close eye on cashflow to ensure they can navigate unexpected peaks and troughs in demand. Putting clear plans in place early will help management teams to take advantage of tapering inflation and focus on their ambitious growth strategies throughout the year ahead.”

Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking, said:

“Businesses are feeling more confident following the cautious end to 2023, with this being the strongest start to a year since January 2016. The reduction in inflation, albeit with the recent uptick, and the belief that interest rates may have peaked is likely driving the rise in confidence among firms.

“With ongoing geopolitical issues and a general election on the horizon, businesses will have factored these into their risk radars and will be working to prepare for any potential impacts on their trading prospects.

“Also, half of all companies say they’re planning to increase headcount in the coming year. Despite that and the changes to minimum wage that will come into force in April, expectations for staff pay fell back following last month’s increase”.