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17 January 2025

Contractions in Output and New Orders Soften in December


Latest Cymru Growth Tracker data from NatWest indicated slower declines in activity and new business at Welsh companies in December.

At 48.9 in the final month of 2024, 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 – picked up from 47.7 in November, to signal a weaker decrease in output at Welsh firms. The pace of decline was the softest in the current four-month sequence of contraction.

Sebastian Burnside, Chief Economist of NatWest Group, summarised the report’s findings for Business News Wales.

Contributing to the slower fall in output was only a fractional drop in new business, with firms continuing to foresee greater activity in the year ahead. Economic uncertainty and concerns about future increases in costs and selling prices dampened expectations, however.

Nonetheless, cost-cutting efforts amid subdued demand, burgeoning spare capacity and greater cost pressures led to the fastest drop in employment since September 2020. Although firms were able to hike selling prices at the quickest rate since May 2024, business confidence slipped to a 13-month low.

Jessica Shipman, Chair, NatWest Cymru Regional Board, said:

“Welsh businesses signalled a slightly brighter end to 2024 in December as contractions in output and new orders cooled. Reports of some success in engaging new customers in part stymied the decline in new business, with firms expecting growth in activity in the year ahead.

 

“Companies remained in retrenchment mode, however, as the fall in employment gained pace. Backlogs of work also declined markedly amid signs of spare capacity which dampened confidence in the future outlook.

 

“Meanwhile, inflationary pressure strengthened. Although input costs rose at a sharper rate, firms were able to also hike their selling prices at a historically elevates pace amid a less marked drop in new orders. Concerns around upcoming increases in wage bills in 2025 were highlighted by firms, which may place additional strain on margins in the coming months.”

Performance in relation to UK

The fall in business activity seen among Welsh companies contrasted with a marginal expansion seen at the wider UK level. The pace of contraction at Welsh businesses eased. At the same time, the rate of growth in output across the UK as a whole slowed fractionally.

Welsh businesses signalled a second successive monthly decrease in new orders at the end of 2024. The pace of decline eased, however, to only a fractional pace that was among the weakest of the ten monitored UK areas to register a downturn.

Lower new orders weighed on business' level of optimism, meanwhile. The degree of confidence in a rise in output over the coming year dropped to the lowest since November 2023 and was below the series and UK averages.

December data signalled a sharper decline in employment at Welsh private sector firms. The rate of job cuts was the quickest since September 2020, as voluntary leavers were not replaced and cost-reduction initiatives and lower new sales drove redundancies. Moreover, the pace of decrease in staffing levels was the steepest of the 12 monitored UK areas. In line with the trend for employment, Welsh businesses recorded the quickest drop in incomplete work of the 12 UK areas monitored by the survey.

Average input prices at Welsh firms increased at a sharper pace in the final month of 2024, with the rate of inflation accelerating to the fastest since last April. The historically elevated rise in cost burdens was linked to higher supplier and material prices, alongside greater rent and wage bills. The pace of increase was slightly slower than the UK average, however.

At the same time, firms sought to pass through higher costs to customers through a rise in selling prices. Here, the pace of charge inflation also quickened to the fastest since May 2024 and was sharper than the series average. Nevertheless, the rate of increase was among the slowest of the 12 monitored UK areas, with only Yorkshire & Humber, Northern Ireland and the West Midlands recording weaker upticks.


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