Business confidence in Wales has increased after three quarters of decline, but has stayed within negative territory, a survey of business leaders has found.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Wales put confidence at -3.7 on the index for Q2 2025, an increase from the reading of -17.6 in the previous quarter. However, the reading was below the country’s historic average.

Although confidence in Wales has improved, it remains fragile amid weak domestic and exports sales growth, ICAEW said. Some sectors in Wales – manufacturing and engineering and retail and wholesale – were among those that reported the lowest confidence levels in the UK.

The Institute added that uncertainty around the outcome of next year’s Senedd elections was probably a contributing factor, though the UK-US trade deal had likely provided a boost, particularly for exporters.

Both domestic sales and exports grew at a lower rate in Q2 than their respective historic averages, the BCM found. ICAEW said that low domestic sales growth was likely linked with the minimal increases reported by the manufacturing and engineering companies which are a central part of the Welsh economy. Nevertheless, Welsh businesses forecast improvement in both domestic sales and exports growth within the year ahead.

The tax burden remained the most prominent challenge for Welsh businesses following April’s rise in employer’s National Insurance Contributions, with more than half of the nation’s companies citing it as a growing source of difficulty. Customer demand and competition in the marketplace were also cited as challenges.

Employment growth in the year to Q2 2025 was minimal, reflecting the increases in National Insurance and the National Living Wage in April as well as the performance of the manufacturing and engineering and retailing and wholesale sectors, which are key to the Welsh economy.

Meanwhile, annual input price inflation in the year outstripped the UK average, through this is expected to moderate in the next 12 months.

To deliver growth, the Chancellor must spare business from additional tax hikes in the Autumn Budget, ICAEW urged. It added that to improve certainty, government should clamp down on damaging speculation in the lead up to the Budget, particularly given the upcoming election in Wales that is due to be held in May 2026.

Robert Lloyd Griffiths OBE, ICAEW Director for Wales, said:

“It’s heartening to see that sentiment has increased and is now broadly on par with the UK average. Nevertheless, our companies are underperforming across most of the key metrics, suggesting we are not out of the woods yet.

 

“As we move into the season of Budget speculation and the run up to the Senedd election here in Wales, it’s imperative that government learns from the past year. Rumours will only serve to destabilise businesses, so we urge politicians in both Cardiff and Westminster to be honest about their plans, to give Welsh businesses the opportunity to plan ahead and weather the storm.”

Nationally, business confidence declined quarter on quarter to -4.2 in Q2 2025.