Despite gloomy economic forecasts, business leaders in Wales are optimistic about their growth opportunities for the year ahead.

According to data from Grant Thornton UK LLP’s latest Business Outlook Tracker*, mid-market optimism in Wales has rebounded:

Revenue growth expectations have risen +18 percentage points (pp) since October
Profit growth expectations are on the rise – increasing +19pp since October

The results indicate that businesses are confident they can weather this economic downturn. Almost three quarters (74%) are confident that they have sufficient working capital to manage the impact of a recession for six months or more.

The top concerns for the region’s mid-market heading into 2023 are falling customer demand, rising interest rates, geopolitical tensions and wage increases, all of which they feel sufficiently prepared to manage.

The mid-market continues to struggle to attract and retain talent, with 48% of respondents experiencing unusually high attrition rates. Over a third (42%) are also struggling to recruit for open roles.

But employers are pulling out all the stops in a bid to remain competitive. Four out of five respondents (80%) are planning to offer their people a pay rise in line with, or above, inflation, while 82% are also reviewing their employee benefits package to make it more competitive. Over half (52%) are also planning to invest more in skills development over the next six months.

The research also finds that the mid-market is starting to look for ways to reduce its reliance on people, with just under two thirds (64%) agreeing that they are increasing their use of automation and digital.

Alistair Wardell, partner at Grant Thornton UK LLP and head of its restructuring team in the South of England and Wales, said: “It is surprising that the market’s positivity levels are at odds with the forecasts from the Bank of England and the government. Optimism levels have rebounded significantly since October, when the shock and uncertainty from the mini-Budget plummeted mid-market optimism to some of the lowest recorded in our Tracker. The certainty provided since seems to have reassured the market.

“Even though we know the economy and operating conditions are not likely to improve much in the short term, it is perhaps better to have bad news over uncertainty. Certainty over the future allows businesses to work this into their forecasts and take action to soften the impact.

“Our survey shows that the labour market remains a concern. Employers are trying to improve efficiency and productivity, while also managing cost levels, which is demonstrated by high investments in technology and people. It is interesting to note the focus on skills development, which shows a commitment to making staff more efficient as well as a desire to manage retention levels and costs.

“With the factors that caused low inflation in the recent past such as low-cost labour, cheap energy and cheap imports having dissipated, I believe businesses should take into account the potential for structurally higher inflation in the coming decade and consequentially higher interest rates than the last decade for the medium term.

“Having seen first-hand how our region responded to the challenges of recent years with determination, flexibility, enterprise and innovation, I am confident that businesses in Wales will find a way to survive and thrive during the months ahead. Given the encouragingly high optimism levels, it would seem that the local market shares this confidence.”