Welsh businesses cut workforce numbers at the fastest rate of any UK region in August as weak demand continued to weigh on confidence, despite private sector output recording a second consecutive month of growth.
The latest NatWest Cymru Growth Tracker points to a mixed picture for the Welsh economy, with businesses continuing to increase activity while simultaneously responding to subdued order books and uncertainty by reducing employment.
Welsh companies reported another fall in new sales during August, extending the current period of contraction to seven months. The decline was modest but contrasted with the wider UK, where new business recorded a slight increase.
Against this backdrop, businesses continued to reduce headcounts, extending a run of job losses which began in September 2024. The rate of decline accelerated during August and was the strongest among the 12 UK areas monitored by the survey.
Business confidence also weakened. While Welsh firms still expect activity to increase over the coming year, optimism fell to its lowest level since October 2025 and was the second weakest across the UK, ahead of only Northern Ireland.
The figures come despite another marginal expansion in overall business activity.
The headline Wales Business Activity Index, which tracks month-on-month changes in combined manufacturing and service sector output, registered 50.4 in August, compared with 50.5 in July. Any reading above 50 indicates growth.
It represented a second successive month of increased output, although the pace of expansion remained below the UK average.
Businesses also continued to work through outstanding orders, with backlogs declining at a slightly faster rate. The reduction in work-in-hand was again the steepest of the 12 UK areas monitored, suggesting firms are facing little pressure on capacity.
Jessica Shipman, Chair of the NatWest Cymru Board, said:
“Welsh businesses saw further output growth in August, but demand conditions remained challenging. Firms were able to work through their backlogs with little strain on capacity, as the pace of decline in new sales gained speed.
“Hesitancy to spend on non-essential purchases and uncertainty at customers also dampened business confidence which slipped to a 10-month low.
“In fact, companies continued to prioritise cost-cutting efforts amid a slight hike in cost inflation. Employment fell at a sharper rate as uncertainty in the outlook dampened hiring intentions further.”
Inflationary pressures also increased slightly during August. Input costs rose at a faster rate than in July, although inflation remained below the highs recorded between March and June and was softer than the wider UK trend.
Welsh businesses responded by increasing their own selling prices at a fractionally quicker rate, with output charge inflation matching the UK average.
Ms Shipman added:
“Although sharpening, the quicker pace of cost inflation was met by a similar acceleration in the rate of increase in selling prices as firms sought to protect margins. Inflationary pressures were also much less marked than seen in the second quarter, offering some respite from the substantial price hikes seen earlier in the year.”
The August figures therefore underline an increasingly divided picture for the Welsh private sector: businesses are still producing more, but seven months of falling new orders, continued job losses and weakening confidence suggest that translating that activity into sustained growth remains a significant challenge.
