Following two consecutive months of decline, the latest Cymru Growth Tracker data from NatWest signalled a fresh and solid rise in Welsh private sector activity.
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 May from 48.1 in April, signalling the joint-strongest uptick in a year. Meanwhile, demand conditions remained subdued as new orders declined for the sixth month running. Lower new business dampened output expectations for the year ahead which were at their lowest for two-and-a-half years.
However, underlying data revealed that the rise in Welsh private sector activity was confined to the manufacturing sector, where goods producers noted that growth in new orders underscored the latest uptick. Though encouragingly, service providers recorded a softer rate of activity contraction.
Jess Shipman, chair, Wales Cymru Board, said:
“May data revealed a return to growth in many locations and Wales was one such area, witnessing a notable rebound in business activity driven by increased output in the manufacturing sector. Welsh firms adapted to more favourable market conditions, with recent data indicating improved demand highlighted by a fresh rise in orders.
“However, despite the rebound in business requirements, this did not result in an increase in hiring activity. In fact, employment was reduced sharply, largely due to increases in National Insurance contributions and the Minimum Wage, which adversely affected recruitment and staffing levels. Additionally, escalating labour costs were identified as a key factor behind the sharp rise in business expenses, ultimately leading to increased output prices. However, it is worth noting that inflation rates eased during the month and were largely consistent with national averages.”
Performance in relation to UK
A fresh, albeit fractional, rise in output was recorded at the UK level, with Wales leading the increase among the 12 tracked regions and nations.
Welsh private sector firms recorded a fresh rise in new business during May, thereby ending a six-month sequence of decline. Though only a modest rate of expansion, it was significant as it marked the only increase of the 12 monitored UK regions and nations.
The uptick in new work was centred on the manufacturing sector, where there were reports of increased customer demand, new product launches and renewed government confidence.
Surveyed panellists also indicated stronger optimism towards the year-ahead outlook for activity in May. The degree of confidence, after hitting a two-and-a-half year low in April, bounced back to a three-month high. Where an increase in business activity was anticipated, firms cited plans of new contract launches, heightened government confidence, competitive gains and strategic growth initiatives.
That said, of the 12 monitored regions and nations, positive sentiment was the third-weakest in Wales, with only firms in Northern Ireland and the North East exhibiting lower levels of optimism.
Employment levels at Welsh private sector firms fell further in May, thereby extending the current run of decrease to nine months. The rate of job shedding eased but remained steep and stronger than both the long-run and UK averages.
Surveyed respondents blamed that latest round of job reduction to redundancies caused by increased National Insurance contributions and Minimum Wage, as well as retirements and departures.
Despite a renewed rise in incoming new business and falling employment in May, Welsh private sector firms had sufficient capacity to reduce outstanding business. A drop has now been recorded in each month since May 2022. The rate of depletion was faster than in April and rapid overall.
Latest data showed a sharp uptick in cost pressures facing firms across Wales during May. While the rate of input price inflation eased from April's recent high, it was above its long-run trend and broadly in line with that seen across the UK as a whole. A number of respondents attributed this to the rise in National Insurance contributions and Minimum Wage.
Prices levied for goods and services by Welsh private sector companies rose strongly in May. However, mirroring the trend in input prices, the rate of output price inflation also softened slightly since April. Despite this easing, it still exceeded the long-run average and was comparable to the that observed at the UK level.
