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Welsh Private Sector Grows for the First Time Since February 2020

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The headline NatWest 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 – registered 65.5 in May, up from 60.7 in April, to signal the fastest expansion in business activity since data collection for the series began in January 2001. Output reportedly rose at a quicker pace amid stronger client demand following the easing of COVID-19 restrictions. The rate of activity growth was among the steepest of the 12 monitored UK areas, slower than only the North West.

Welsh private sector firms signalled a marked expansion in new orders during May. Companies largely linked the upturn to greater client demand, with many noting this stemmed from the easing of COVID-19 restrictions. The rate of growth was the fastest on record, and the third-sharpest of the 12 monitored UK regions (behind only the North West and West Midlands).

Optimism across the Welsh private sector improved in May, with the level of positive sentiment reaching the second-highest since February 2014. Confidence reportedly strengthened due to stronger client demand and hopes of a further easing of COVID-19 restrictions throughout 2021. The degree of optimism was weaker than the UK average, however.

May data indicated a renewed rise in workforce numbers across the Welsh private sector, with employment increasing for the first time since February 2020. The upturn in staffing levels was widely attributed to the strongest expansion in new business on record. Whilst the quickest since November 2018, the rate of job creation was only modest overall and the weakest of the 12 monitored UK areas.

Welsh private sector firms indicated a much faster rate of growth in outstanding business during May. The pace of increase was the fastest since data collection for the series began in January 2001. The marked rate of expansion in backlogs was reportedly due to a sharp influx of new business.

The rise in work-in-hand was one of the strongest of the 12 monitored UK areas, slower than only the North West, West Midlands and Yorkshire & Humber.

Private sector firms across Wales registered a quicker rate of cost inflation during May, as the pace of increase accelerated to the steepest since August 2008. The rise in input prices was overwhelmingly linked to supplier price hikes and additional transportation fees following freight delays.

The rate of increase in cost burdens was quicker than the UK average.

Selling prices across the Welsh private sector increased markedly in May, with the rate of inflation quickening notably to the fastest on record. Many companies stated that higher charges were linked to the pass-through of greater costs to clients. The pace of charge inflation was quicker than the UK average.

Kevin Morgan, NatWest Wales Regional Board, commented:

“Welsh businesses registered a record-breaking rate of expansion in output during May, as the easing of lockdown restrictions boosted customer demand and new sales. Stronger new business growth also helped drive a renewed upturn in employment, which rose at the sharpest pace since November 2018. The reported influx of new orders also led to the fastest accumulation in backlogs on record.

“Meanwhile, inflationary pressures mounted further amid ongoing supply-chain disruptions. The rate of increase in cost burdens was the quickest for almost 13 years, with a number of firms passing through greater input prices to clients via the steepest rise in charges on record.”