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Dev-Bank Wales MBO
15 April 2024

Renewed Growth in Welsh Output as Demand Conditions Strengthen

The headline NatWest Wales PMI® 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 – rose from 47.5 in February to 50.3 in March, to signal a renewed expansion in output at Welsh businesses. Although only fractional and well below the UK average, the rise in activity was the first since August last year. Anecdotal evidence suggested that stronger demand conditions and a return to growth in new orders drove the latest upturn in business activity.

Welsh private sector businesses signalled a renewed rise in new orders at the end of the first quarter, thereby ending a nine-month sequence of decline. The expansion was solid overall and the fastest in a year, with firms linking growth to stronger customer confidence and improved demand conditions.

Of the 12 monitored UK areas, only London and Northern Ireland posted stronger upturns in new business.

Output expectations among Welsh businesses remained upbeat with regards to the year-ahead outlook in March. Confidence was reportedly underpinned by new product launches, the commencement of new projects and hopes of stronger demand conditions.

The degree of optimism slipped from February's recent high and was lower than the UK average. Nonetheless, it remained elevated in the context of the series history.

March data indicated a renewed increase in workforce numbers at Welsh firms, thereby ending a seven-month sequence of job shedding. The rise in employment was marginal overall, but the second-fastest in almost a year-and-a-half. Job creation was attributed to greater new order inflows and efforts to expand capacity. The pace of employment growth was quicker than the UK average.

Outstanding business at Welsh private sector firms continued to decrease in March, thereby extending the current sequence of contraction that began in May 2022. Lower backlogs of work were linked to sufficient capacity to process incoming business. That said, the pace of decline softened to the slowest since December 2022 amid a renewed rise in new orders.

Nonetheless, Welsh firms saw one of the quickest depletions of incomplete business of the 12 monitored UK areas.

Average input prices increased at a marked pace during March, albeit with the pace of inflation softening to the slowest in 2024 so far. Higher input prices were reportedly due to increased raw material, fuel and wage costs. At the same time, greater transportation fees due to disruption to Red Sea shipping routes also pushed up operating expenses.

The rate of cost inflation was weaker than the long-run series average, with Welsh firms recording the slowest uptick in input prices of the 12 monitored UK areas.

Welsh businesses recorded a further sharp rise in output charges during March. The pace of inflation quickened slightly from February and was the steepest since June last year. Buoyed by stronger demand conditions, firms were better able to pass through higher costs to customers. With the exception of London, Welsh firms registered the quickest rise in selling prices across the UK.

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

“Welsh firms signalled a stronger end to the opening quarter of the year, as output and new orders returned to growth following improved demand conditions. This therefore ended a nine-month sequence of a subdued sales environment, with new business rising at the sharpest pace in a year. Subsequently, firms sought to expand capacity, hiring new workers for the first time since last July. Backlogs fell at the slowest pace since December 2022 amid signs of pressure on capacity.

“Inflationary pressures remained elevated in March. Costs rose at a slower pace, but one that was still marked as transportation fees increased following disruption to Red Sea shipping routes. Selling prices increased at a faster rate, however, as firms were better able to pass through higher costs amid stronger demand conditions.”

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