Latest Cymru Growth Tracker data from NatWest notes a stronger uptick in business activity midway through the opening quarter.
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 – rose to 51.5 in February, up from 50.7 in the month prior. Expansions have now been seen for a second straight month, with the latest uptick in activity the most marked in six months.
However, February data indicated that Welsh firms faced challenges in securing new business, with the latest decline stretching the current downturn to four months.
Nonetheless, companies expressed greater confidence in their forecasts for the upcoming year, anticipating that activity growth can be maintained over the coming 12 months. Positive sentiment was underscored by planned strategic growth initiatives, with businesses expecting to expand sales and improve their productivity. Additionally, introduction of new projects and acquisition of new customers were also cited as underlying reasons.
Speaking to Business News Wales, Sebastian Burnside, Chief Economist of NatWest Group, summarised the report's findings for February:
Jessica Shipman, Chair, NatWest Cymru Regional Board, said:
“Despite an overall decline in new business, Welsh private sector activity grew at a stronger pace in February, buoyed by improved demand in specific sectors. Furthermore, output growth is anticipated to be sustained over the next 12 months, as companies express greater optimism.
“However, firms continued to adopt conservative hiring practices, and in some cases, even reduced their payroll numbers. Additionally, price pressures remained rapid and largely consistent with those observed in January, although the rates of inflation were below post-pandemic levels and weaker than the UK-wide averages.”
Growth in Welsh private sector activity outpaced that seen for the UK as a whole.
Private sector firms across Wales noted a fourth consecutive monthly drop in new business during February. The rate of decrease was the fastest in three months, but modest overall. Challenges in securing new business were linked to sluggish domestic demand, reduced confidence in government policies, and lower demand from the EU, as noted by survey responders.
Of the ten tracked regions and nations to record a decline in new orders, the downturn was the softest in Wales, however.
Moreover, Welsh firms displayed a higher degree of optimism in February in the year-ahead outlook for activity. The level of confidence improved to a five-month high, albeit slightly less upbeat when compared to the UK-wide average.
A sixth straight monthly decline in payroll numbers was recorded across Wales in February. The rate of job shedding quickened from that seen in January and was sharp overall. Staffing levels were downsized as a result of a number of factors including non-replacement of voluntary leavers, redundancies, changes to labour market policies, and decreased demand. That said, the rate at which employment fell across the UK was more pronounced than seen for Wales.
Despite a decline in employment, a reduction in new business and rising activity levels allowed Welsh firms to make inroads into their backlogs, as has been the case in each month for nearly three years. Although the rate of contraction was the least pronounced in five months and softer than the UK-wide average, it remained sharp overall.
Welsh firms noted that cost burdens rose at a rapid and slightly accelerated pace midway through the opening quarter of the year. The rate of input price inflation was the most marked in ten months. Surveyed respondents attributed this to rising labour costs, higher import prices, as well as increasing prices for raw materials. Input prices across Wales rose at the weakest pace of the 12 monitored UK regions and nations, however.
In February, charges for goods and services increased among Welsh private companies. The rate of output charge inflation accelerated slightly compared to the previous month, reaching its highest level in nearly a year, although it still fell short of the average recorded for the UK as a whole. This rise in charges was attributed to the passing on of costs.
