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Business Activity Growth Accelerates to Five-Month High

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According to the latest NatWest Wales PMI® data, private sector firms noted a stronger increase in business activity during July. The rate of growth quickened to a five-month high amid a sharper upturn in new business.

Despite a faster increase in new orders and a renewed rise in backlogs of work, firms were reluctant to add to their workforce numbers, with employment falling for the first time in five months. That said, Welsh firms were upbeat about the coming 12 months, with confidence towards output growth at its strongest since early-2018.

Meanwhile, inflationary pressures were subdued relative to recent levels as firms sought to stay competitive.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors –  registered 53.2 in July, up from 51.5 in June and signalling a solid increase in output that was the fastest since February. Furthermore, the rate of growth was the sharpest of the 12 monitored UK areas. Panellists stated that the accelerated rise in output was due to greater client demand and new customer wins.

New business growth quickened for the second successive month in July, with the rate of expansion reaching a three-month high and exceeding the UK average. Improved sales and marketing activity reportedly drove the solid upturn.

Although growth in client demand picked up further from May’s recent low, Welsh firms reduced their workforce numbers in July. The decrease was the first since February and marginal overall. Some firms noted that the decline in staffing levels was due to cost-cutting initiatives.

Nonetheless, firms registered a renewed rise in backlogs of work during July. Although only fractional, the increase was the first recorded since March. Firms attributed growth to greater new business.

On the price front, the rate of input cost inflation was in line with the long-run series average, despite being the slowest for three years. Nonetheless, firms linked greater cost burdens to higher material prices and exchange rate weakness which pushed imported prices up.

Output expectations towards the year ahead improved in July, with the degree of confidence reaching the strongest since February 2018. Welsh firms were among the most upbeat towards the coming year, alongside the West Midlands and Yorkshire & Humber.

Kevin Morgan, NatWest Wales Regional Board, commented:

“The Welsh private sector signalled a stronger expansion in business activity in July and was a bright spot across the UK, registering the fastest expansion of the 12 monitored areas. New business picked up amid reports of improved marketing and sales initiatives. As a result, Welsh companies were among the most confident of a rise in output over the coming 12 months.

“Despite optimism across the private sector improving, cost-cutting measures led to the first fall in employment since February.

“Firms also noted that in an effort to remain competitive and at the request of some clients, increases in selling prices were kept to a minimum despite a marked rise in input costs.”