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New business falls at faster pace amid weak client demand

According to the latest NatWest Wales PMI® data, private sector firms registered only a fractional expansion in business activity, following a sharper contraction in new orders during September. Subsequently, employment and backlogs fell further and at faster rates. Nonetheless, business confidence picked up slightly and was modest overall, as firms hoped for a resolution to ongoing Brexit uncertainty.

Although input prices rose at the joint-slowest rate since July 2016, and client demand weakened, firms were able to raise output charges at a solid and quicker pace.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors – registered 50.2 in September, down from 51.2 in August and indicating the slowest upturn in output for just over three years. Although firms stated that weaker growth was linked to a drop in new orders, the expansion contrasted with a marginal contraction seen at the UK level.

New business fell for the second successive month in September, with the rate of decline accelerating to the fastest since July 2012. Panellists attributed the drop in client demand to ongoing uncertainty surrounding Brexit and resulting hesitancy among customers, with both manufacturers and service providers noting a fall. The decrease in new business was quicker than the UK average.

In line with weak demand conditions, firms reduced their workforce numbers for the third consecutive month in September. The pace of decline was the sharpest since the end of 2011 and linked to lower business requirements.
Meanwhile, a further decrease in backlogs was reported by private sector firms, as a drop in new sales allowed companies to clear work-in-hand at the quickest rate since June 2018.

September data signalled a further marked rise in input prices, which was attributed to higher costs for energy and imported goods. That said, the rate of inflation was the joint-slowest since July 2016 and below the UK average.

Despite a softer increase in cost burdens, firms were able to raise their selling prices at a solid and faster pace.

Panellists linked the increase to the partial pass-through of higher costs to clients. Manufacturers and service providers alike registered a quicker rise in output charges.

Business confidence across the Welsh private sector improved in September as firms reported hopes for a resolution to ongoing political uncertainty. The degree of optimism picked up from August’s recent low and was among the strongest of the 12 monitored UK areas (behind only the East Midlands and Yorkshire & Humber).