Output expectations improved to a seven-month high for Welsh businesses despite a decline in business activity in September, according to the latest Cymru Growth Tracker data from NatWest.
At 45.5, the headline Wales Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – was down from 50.4 in August and indicated a faster fall in output levels.
Companies reported that the pace of cost inflation eased over September whilst greater competition led to a slower rise in selling prices.
And despite subdued demand, business confidence ticked up to the highest since February.
Sebastian Burnside, Chief Economist of NatWest Group, summarised the report’s findings for Business News Wales.
Jessica Shipman, Chair, NatWest Cymru Regional Board, said:
“Welsh businesses recorded more upbeat expectations for output at the end to the third quarter, despite activity and new orders falling. That said, a degree of client hesitancy and weak demand in key markets and sectors weighed on new sales.
“The rate of cost inflation slowed, however, and lost momentum from August’s recent high. At the same time, selling prices rose at a softer pace as firms sought to drive new sales.
“Meanwhile, Welsh businesses were more upbeat in the outlook for output over the coming year. Optimism was the highest since February as firms hoped for improved demand conditions and successful outcomes from investment in client outreach and new strategic endeavours.”
Welsh companies often stated that lower activity stemmed from client uncertainty, competition and reduced spending in key sectors. The strong decrease was the third-fastest of the 12 monitored UK areas, with sharper contractions seen in Yorkshire & Humber and Northern Ireland.
Welsh private sector firms indicated a further monthly drop in new sales during September. The fall in new business was quicker than that seen in August. Moreover, the rate of decline was the second-quickest of the 12 monitored UK areas, with only the East Midlands recording a faster decrease in new orders.
September data signalled a further rise in selling prices at Welsh firms, but the pace of increase eased from June's three-month high to the weakest since the opening month of 2021. The pace of increase in output charges was the third-slowest of the 12 monitored UK areas, faster than only the North West and Scotland.
The pace of increase in input prices also slowed at the end of the third quarter, but remained historically elevated. Panellists often stated that a higher cost to employ staff, alongside greater energy and raw material prices drove up operating expenses. The rate of input price inflation matched that seen at the UK level.
Welsh firms were more upbeat in their expectations regarding output over the coming year in September. The degree of optimism rose to the highest since February. The level of positive sentiment was below the UK average, however, with only Scotland and Northern Ireland registering weaker optimism in the outlook.
Staffing levels at Welsh firms were reduced further at the end of the third quarter. The pace of job shedding picked up. The latest fall in workforce numbers was linked to higher input prices, alongside subdued customer demand. Of the 12 monitored UK areas, only the West Midlands recorded a faster decline in employment.
The decrease in headcounts was also reflective of spare capacity at firms, as the level of work-in-hand contracted further. The pace of depletion was steep overall.
