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Business activity growth slips to three-month low

According to the latest NatWest Wales PMI® data, private sector firms signalled a marginal upturn in business activity in August.

The rate of growth eased to a three-month low, but was still faster than the UK average. That said, new business was broadly unchanged, as client demand weakened notably from July. Subsequently, backlogs fell at a faster pace and employment was reduced at the sharpest pace since late-2011. Business confidence dipped to a five-month low as Brexit uncertainty weighed on expectations. At the same time, inflationary pressures softened.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors –  registered 51.2 in August, down from 53.2 in July. The latest upturn was only marginal overall and signalled a softer output expansion across the Welsh private sector in August. Anecdotal evidence suggested the rise was largely due to the clearance of backlogs, amid weaker client demand.

New business across the Welsh private sector was broadly unchanged in August, with the seasonally adjusted New Business Index posting below the 50.0 neutral mark for the first time since July 2016. The latest data was broadly in line with the UK average which indicated a fractional fall in client demand. Weakness largely stemmed from the manufacturing sector which registered a solid fall, with service providers recording a marginal expansion.

Employment fell for the second successive month in August, with the rate of contraction accelerating to the fastest since December 2011. Lower staffing levels were linked to cost-cutting initiatives and the non-replacement of voluntary leavers.

Meanwhile, outstanding business signalled a renewed decline in August, falling for the fourth time in five months. Weaker demand conditions reportedly allowed firms to process unfinished business.

Input prices increased at a faster and marked rate in August, as currency weakness reportedly pushed purchase prices higher. That said, the pace of inflation was slower than the UK average.

Output charges meanwhile rose at the second-softest rate since May 2016, as greater competition reportedly limited price increases.

Business expectations towards the year ahead remained optimistic in August, but the degree of confidence slipped to a five-month low amid ongoing Brexit uncertainty. Some firms also stated that higher costs resulting from currency weakness placed pressure on margins.

Kevin Morgan, NatWest Wales Regional Board, commented:

“Following several months of outperforming the UK as a whole, the Welsh private sector lost some momentum in August and was brought further in line with the UK average, as output growth slowed and new business was broadly unchanged from that seen in July. The softer overall expansion led firms to cut their workforce numbers again, and at the sharpest pace since late-2011.

“Although still optimistic, firms noted the lowest degree of confidence in future output for five months. Ongoing uncertainty surrounding Brexit and currency weakness were highlighted as key factors behind more cautious expectations.”