Businesses across Wales have scaled back plans to invest and recruit more staff as increasing political and economic uncertainty are affecting confidence, according to the latest Business in Britain report from Lloyds Bank.

Business confidence in Wales – calculated as an average of respondents’ expected sales, orders and profits over the next six months – fell to 20 per cent compared with 34 per cent in July 2017.

As a result, the net balance of firms looking to grow investment in the next six months fell by two points to 12 per cent.

The net balance of businesses looking to hire more staff also fell by 10 points to six per cent during the same period.

The nation is also facing challenges recruiting skilled workers, with the number of companies experiencing difficulties rising five points to 37 per cent.

Meanwhile, the number of firms expecting to increase pay rose by just one point to 15 per cent, suggesting that companies are still taking a cautious approach to pay.

The Business in Britain report, now in its 26th year, gathers the views of more than 1,500 UK companies, predominantly SMEs, and tracks a range of performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.

Wales experienced the sharpest fall in confidence of all UK regions analysed, followed closely by neighbour the South West, where confidence fell by eight points.

Business confidence was highest in the North East (38 per cent) and North West (31 per cent), while the lowest level of confidence was in Yorkshire and the Humber (15 per cent), followed by Scotland (17 per cent).

Andrew Kemp, regional director for Wales at Lloyds Bank Commercial Banking, said: “Business confidence across Wales is now lower than in the period immediately following the EU Referendum, with political and economic turbulence, both in the UK and globally, leading many businesses to scale back plans for growth over the coming months.

“This is unsurprising considering that Europe accounted for nearly 60 per cent of Welsh exports over the last year. Many firms will be looking at the next phase of the negotiations, which will hopefully bring greater clarity on what our future trading relationship with the EU will be.

“However, while the Brexit negotiations continue, businesses remain focused on short term threats – including managing higher costs and maintaining positive cash flow - so that they can prepare for whatever 2018 brings."

Economic uncertainty is now the single greatest risk to Welsh firms in the next six months, cited by 31 per cent of companies, up from 16 per cent in July.

The proportion of companies across Wales reporting political uncertainty as their greatest risk increased to 15 per cent from six per cent.

The share of Welsh companies that are confident about business interests being protected or promoted in Brexit negotiations also fell sharply to 38 per cent from 67 per cent previously. This is now only marginally higher than the share of businesses expressing a lack of confidence, which rose to 37 per cent from 14 per cent.

When asked about the impact of a ‘no trade’ agreement with the EU on their business, over all, 13 per cent of Welsh firms said that ‘no deal’ would be positive and 47 per cent said that it would be negative.

Nationally, business confidence was highest in manufacturing, while sectors more dependent on domestic demand, such as hospitality, leisure, and retail and wholesale also recorded gains.

The only sector that reported a significant fall was construction, in which confidence dropped from 31 per cent to 14 per cent.