Welsh SMEs buck national trend by losing confidence in economy

The latest FSB Wales Voice of Small Business Index shows that in the final quarter of 2015 confidence among FSB members fell three points to -1.3.

It is the first time that the index has pointed to a lack of confidence among small firms since the start of 2013.

The fall in confidence in Wales is at odds with the wider UK picture, with UK figures released today by FSB showing a marginal increase on the previous quarter.

While confidence has dipped in other parts of the UK, Wales is the only economic region where the survey found negative sentiment among small businesses.

The level of confidence among smaller firms in Wales has also remained below that of small businesses in the wider UK in every quarter since 2010 when the index began.

In line with the decline in confidence, fewer small businesses in Wales said they anticipated turnover and profit to increase over the coming three months.

A positive balance of seven per cent of firms expect revenues to rise in the coming three months, whilst the positive balance expecting profitability to rise stands at just four per cent. Both figures are the weakest for more than a year.

The release of the survey comes less than a fortnight after Chancellor George Osborne warned of a ‘cocktail of new threats’ facing the economy during a visit to Cardiff.

FSB Wales policy unit chair Janet Jones said: “It is disappointing to see the index fall back into negative territory, but it does mirror some of the anecdotal evidence that we have heard from our members across Wales in recent months.

“We know that smaller businesses are absolutely key to the success of the Welsh economy, and indeed to the success of local economies in every part of Wales.

“With that in mind we need to do all we can to nurture and sustain our small firms and help them to achieve their potential. That is why in our business manifesto for the next Welsh Government we have proposed the creation of a Wales Small Business Administration, bringing SME finance, business support, procurement and SME research under a single umbrella body. We believe that such a body has an important role to play in boosting confidence and capability among the small business sector in Wales.”

Despite the deterioration in the confidence index, the small firms questioned by the study said that on balance they had created more jobs, with a positive balance of 6.3 per cent of firms questioned having increased their staffing in the previous three months. It is the second consecutive quarter of positive hiring intentions, and a positive balance of 5.7 per cent of firms questioned said they intend to increase their headcount in the first quarter of 2016.

The positive balance of small businesses taking on staff was also reflected in the figures for small firms targeting growth in the year to come. Of those questioned 51 per cent said that they planned to grow their business in the next 12 months, up from the figure of 47 per cent seen in the previous quarter.

There are also positive signs that small businesses are continuing to invest, with a net balance of 18 per cent saying they intended to increase capital investment in the year ahead.

FSB Wales policy manager Dr Rachel Bowen said: “The fact that small businesses are continuing to take on staff and invest in plant and machinery suggests that we will see economic growth in Wales in the year ahead.

“However, it is clear from the fall in confidence that there is a fair degree of fragility in the Welsh economy and it is important that we look at measures that will make a tangible difference to the business environment in the year to come.

“The outcome of the Assembly elections in May and the policies of the next Welsh Government could have a crucial bearing on the business environment facing small firms in Wales in the coming year.

“We hope that policymakers will seriously consider some of the proposals that we have put forward for the next Welsh Government such as the introduction of a Wales SBA, moving towards a Better Regulation approach and reform of business rates. Such measures could make a real difference to small firms, which are the foundation upon which the Welsh economy is built.”