Business confidence in Wales has slumped to its lowest level for almost three years, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
In the first quarter of 2012, the Business Confidence Index fell from -9.2 to -18.6, according to the findings of the survey of 68 senior business professionals in Wales.
This is the lowest reading in almost three years and continues a sharp downward trend in the outlook in Wales from a recent high of 16.5 in the third quarter of 2011.
While business turnover held up, gross profits grew at a slower rate and firms cut their employee numbers over the 12 months to the first quarter of this year.
David Lermon, ICAEW director for Wales, said: “Business confidence in Wales has fallen back further because the outlook for the UK economy is so uncertain.
“Household incomes have been under severe pressure with salary levels restrained and job losses and higher energy, food and fuel prices all combining to impact on business confidence. This year was always going to be a difficult one for many businesses and it is proving just that.
“While some jobs continue to be created, the financial problems faced by one of our most high profile and largest companies, Peacocks, was an illustration of the tough economic situation, particularly for firms with significant debts.”
Geraint Davies, Partner at Grant Thornton in Cardiff said: "Another significant and growing problem for businesses in Wales is late payment, with more firms reporting this than anywhere else in the UK. And data shows that 1.2% of all businesses in Wales became insolvent in 2011, a failure rate higher than both the previous year and the UK average.”
ICAEW and Grant Thornton host a business breakfast at the St. David's Hotel & Spa, Cardiff, on Thursday, March 8, with the guest speaker Professor Dylan Jones-Evans, Director of Enterprise and Innovation at the University of Wales, who writes weekly columns on business and politics for the Western Mail and Daily Post.
Key findings of the latest Wales BCM are:
Performance expectations slip back
Annual turnover growth in Wales has been holding up relatively well recently. It is reported to have risen by 2.8% on average over the past 12 months, broadly unchanged from the growth achieved over the 12 months to Q1 2011. Sales volumes rose by 1.8% over the last 12 months, also in line with the annual growth reported in Q1 2011. However, gross profits grew by 1.0% over the last 12 months compared to 2.7% growth reported for the 12 months to Q1 2011.
At the same time, growth forecasts have dropped back in line with the deteriorating economic outlook. Anticipated annual turnover, profit and sales volumes growth have each been on a downward path from at least 4.5% in Q3 2011. In addition annual export growth, which was 6.5% in late 2010, is expected to fall back to 3.7% over the coming year. This poses a risk to growth for Wales as a whole, as exports are equivalent to roughly a quarter of the economy.
Employment conditions worsen
Firms in Wales reduced their employee numbers by 0.8% on average over the year to Q1 2012, highlighting the tough employment conditions that prevail for workers in the region.
The unemployment rate in Wales reached 8.9% during the three months to November, an increase of 0.5 percentage points on a year before – in line with the yearly increase in the UK unemployment rate. This is likely to rise further over 2012, as private sector firms are reluctant to hire and the local labour market remains exposed to government cutbacks. More than one in four workers in Wales (25.6%) are employed in the public sector.
The effect of high joblessness is evident in wage bills. Firms in Wales report increasing average total salaries by 1.3% over the year to Q1 2012. This is far below the inflation rate, which stood at 3.6% in January. The resulting erosions in real incomes are a threat to Welsh growth, as consumers find themselves with reduced purchasing power.
For further information please go to icaew.com/bcm