The latest NatWest Wales PMI® data signalled a faster expansion in business activity in February. The upturn in output quickened to the strongest since last September, supported by a steeper increase in new business. Subsequently, backlogs of work returned to growth, expanding at the fastest pace for two years.
Less positively, firms recorded the strongest fall in employment since December 2011 amid reports that Brexit uncertainty had weighed on recruitment. In line with greater hesitation towards hiring, business confidence remained relatively muted despite picking up to a four-month high. Meanwhile, inflationary pressures ticked up, with input prices rising markedly.
The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors – posted 54.2 in February, up from 52.7 in January. The rate of growth in Welsh private sector output quickened to the fastest for five months. The solid expansion was the sharpest seen across the 12 monitored UK regions and broadly in line with the long-run series average.
Welsh private sector firms registered a faster rise in new business in February. The upturn in new orders was the fastest since September 2018 and the quickest of the 12 monitored UK areas. Panellists suggested that stronger client demand and greater customer stockpiling activity among customers drove the latest rise.
In line with a stronger increase in new business, firms noted a rise in backlogs in February, following four successive monthly decreases. The rate of accumulation, though modest, was the fastest seen for two years.
That said, firms recorded a modest fall in workforce numbers, the second in as many months. Though moderate and broadly in line with the UK trend, the rate of job shedding was the quickest seen since December 2011. Some firms suggested that lower staffing levels were linked to a relatively subdued start to 2019.
Input prices paid by Welsh firms continued to rise in February, with the rate of inflation picking up to marked pace. The increase was slightly faster than the UK average and largely attributed to higher raw material and wage costs, with some firms stating that suppliers were raising prices due to Brexit uncertainty.
Similarly, output charges rose at a faster pace in February. The rate of inflation was the quickest in six months and linked to the pass-through of greater cost burdens to clients.
Business confidence improved to a four-month high in February, but was nonetheless subdued in the context of the series history. Brexit uncertainty reportedly weighed heavily on panellists' minds, with some highlighting the potential impact of a no-deal scenario.
Kevin Morgan, NatWest Wales Regional Board, commented:
“Welsh businesses provided brighter news in February, as output expanded at the quickest rate for five months. Wales topped the regional rankings and was the fastest growing of the 12 monitored UK areas. According to firms, greater stockpiling activity among customers helped to drive the latest rise in business.
“Nonetheless, firms continued to shed workers, and at the quickest pace since December 2011. The fall in staffing numbers came despite the strongest rise in backlogs of work for two years. Continued uncertainty surrounding Brexit and the possibility of a no-deal scenario led to another relatively subdued level of business confidence. Although the degree of optimism was higher than the UK average, it remained weaker than the long-run series trend.”