Welsh SMEs continue to invest despite economic uncertainty, new report shows
Many Welsh small and medium-sized businesses are continuing to invest and grow despite a challenging economic backdrop, according to the latest Economic Intelligence Wales report.
The quarterly report, published in May but covering the third quarter of the 2025/26 financial year, highlights a clear disconnect between business sentiment and activity, with confidence remaining subdued while many firms continue to expand, invest and plan for the future.
Across the UK, small business confidence fell to a post-pandemic low of -70.6 in the final quarter of 2025, with Welsh confidence also firmly in negative territory at -58.8. However, this caution is not translating into inactivity.
More than a quarter (28%) of UK SMEs self-reported reported growth over the past 12 months, while 39.4% of Welsh businesses expect their performance to improve in the year ahead. Business creation also remains resilient, with 2,405 new businesses established in Wales during the quarter, exceeding the 2,225 closures recorded over the same period.
The report suggests that, while firms remain cautious about the wider economic environment, many are continuing to invest in response to underlying demand, competitive pressures and longer-term growth opportunities.
Access to finance remains a key enabler of this activity. Around 66% of Welsh SMEs are currently using some form of external finance, with lending to small firms increasing over the past year.
At the same time, the report highlights the pressures facing businesses. Political uncertainty, rising costs and wider economic conditions continue to weigh heavily on decision-making, while global events, including recent conflict in the Middle East, are expected to add further volatility to energy prices and inflation.
Despite these headwinds, the data points to a level of resilience within the Welsh SME base. Businesses are continuing to adapt, invest and pursue opportunities, even as confidence remains fragile.
The report also highlights the ongoing role of the Development Bank of Wales in supporting this activity. During the third quarter of 2025/26, the Development Bank completed 139 investments totalling £43.5 million, supporting more than 1,100 jobs across Wales.
This included continued investment across a range of sectors, with construction accounting for the largest share by value, alongside support for businesses in accommodation and food services, manufacturing and technology.
The findings underline the importance of ensuring that viable businesses can continue to access the finance they need to invest and grow, particularly in periods of heightened uncertainty.
Max Munday, professor of economics at Cardiff Business School, director of the Welsh Economy Research Unit and an author of the report, said: “While business confidence indicators remain weak, the underlying picture is more nuanced. A significant proportion of SMEs are continuing to grow, invest and plan ahead, which reflects both resilience within the sector and the ongoing need to adapt to changing market conditions.
“What we are seeing is not a collapse in activity, but a more cautious and selective approach to investment. Ensuring that businesses can access the right types of finance will be critical in supporting that continued growth.”
Rhian Elston, Wales investment director at the Development Bank of Wales, added: “What we’re hearing from businesses across Wales is consistent: costs can move quickly, lead times can stretch, and confidence remains a challenge. At the same time, we’ve seen a clear increase in demand for finance since the start of the year as businesses look to navigate these pressures and continue moving forward.
“The latest Economic Intelligence Wales quarterly report reflects that reality. But there is plenty to be positive about as many Welsh SMEs, in true entrepreneurial spirit, are not standing still. They are continuing to make use of our debt and equity funding to invest, to grow and to adapt.
“Across Wales, SMEs remain the backbone of the economy, accounting for the majority of employment and a significant share of economic activity. Their ability to adapt, even in challenging conditions, is a key source of economic strength. Access to the right kind of finance therefore becomes more important than ever.
“Businesses need funding that aligns with their ambitions and their timelines, whether that is supporting short-term working capital needs or enabling longer-term investment in growth, productivity or decarbonisation. As a development bank, that’s exactly what we’re here to do.”
Economic Intelligence Wales is a unique research collaboration between the Development Bank of Wales, Cardiff Business School, Bangor Business School, the Enterprise Research Centre, and the Office for National Statistics (ONS). The collaboration collates and analyses data to create independent, robust and reliable insight to help better understand and improve the Welsh economy.