Economic uncertainty remains biggest barrier to growth for Welsh businesses

Economic uncertainty remains the biggest obstacle to growth for small and medium-sized businesses in Wales despite signs that access to finance is improving, according to a new report.

The annual Dirnad Economi Cymru report found increased lending to smaller businesses and improved availability of credit, but said confidence remained weak amid concerns over costs, recruitment and future demand.

Produced by researchers at Cardiff Business School’s Welsh Economy Research Unit, the report assesses economic conditions, business confidence and access to finance in Wales.

It forms part of the Economic Intelligence Wales initiative, a collaboration involving Cardiff Business School, Bangor Business School, the Enterprise Research Centre, the Office for National Statistics and the Development Bank of Wales.

The report found gross lending to small companies increased by 51% in the first quarter of 2026 compared with the same period a year earlier.

Half of UK SMEs reported using some form of external finance, while lenders reported increased demand for funding from smaller companies and greater availability of credit across small, medium and large businesses.

However, the Federation of Small Businesses confidence index stood at -52.5, with economic conditions identified as the main concern for SMEs.

Wales also recorded more business closures than new businesses during the first quarter of 2026, while the value of Welsh exports fell by 0.5% to £19.1bn in the year to March.

The report comes after the new Plaid Cymru-led Welsh Government set an ambition of halving the productivity gap between Wales and the rest of the UK within a decade.

Cabinet Minister for Enterprise, Connectivity and Energy Adam Price said: “Economic uncertainty continues to weigh on many businesses, but this report provides grounds for optimism.

“Signs of better financial conditions and new business ambition are welcome, especially at a time when investment is vital to Wales’ future economic success.

“Raising productivity means helping businesses to invest in new products, skills and technology.

“Ensuring that ambitious companies can access the capital they need to grow and innovate will be essential if we are to build a more prosperous and competitive Welsh economy.”

The wider economic picture remains difficult, with global growth forecasts downgraded and inflation above target.

There were some more positive indicators, however, with almost 35% of Welsh businesses expecting their performance to improve over the next year – above the UK average.

UK GDP also increased by 0.7% in the three months to April.

Mixed picture

Professor Max Munday, of the Welsh Economy Research Unit at Cardiff Business School and an author of the report, said: “This year’s annual report shows a mixed picture for small and medium-sized businesses in Wales.

“There are encouraging signs that funding conditions are improving, with more credit available and stronger lending to small companies.

“However, confidence remains fragile and the wider economic climate continues to weigh heavily on investment decisions.

“With productivity now central to Wales’ economic mission, ensuring that SMEs can access the finance they need to invest, innovate and grow will be essential.”

Giles Thorley, Chief Executive of the Development Bank of Wales, said the findings reflected what the organisation was hearing from businesses across the country.

He said: “Costs, recruitment and uncertainty continue to create real challenges, but many SMEs are still looking ahead and investing for the future.

“Our role is to ensure that viable businesses can access the right funding at the right time, whether that’s to manage short-term pressures, invest in productivity or support long-term growth.”