My name is Rhys, a first time dad blogging about my adventures and experiences of being a parent. [email protected]

Welsh business confidence rises at highest rate in two years

Welsh flag (Adobe Stock)

The headline NatWest Wales PMI® 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 – slid from 49.9 in January to 47.5 in February. The latest data signalled a modest contraction in output at Welsh firms, and one that was the strongest since last October. Moreover, Welsh businesses were the joint-worst performers at the UK level, alongside the North East. Anecdotal evidence stated that lower activity was due to subdued customer demand and supply chain issues.

Welsh businesses recorded a ninth successive monthly decrease in new orders during February, with the pace of contraction easing to the slowest in this period of decline. Although some firms noted signs of a pick-up in demand conditions, others stated that the cost-of-living crisis continued to dampen sales.

The downturn in new business was only fractional but contrasted with a modest expansion seen across the UK as a whole.

February data indicated a pick-up in business confidence across the Welsh private sector. The level of optimism rose to the highest since November 2021 and was broadly in line with the UK trend. Extensions to product ranges, investment in expanding customer bases and hopes of stronger client demand underpinned confidence, according to panellists.

Workforce numbers at Welsh companies fell for the seventh month running midway through the first quarter. Lower employment stemmed from the non-replacement of voluntary leavers amid efforts to improve efficiency and cut costs. The pace of job shedding eased notably, however, and was the slowest since August 2023.

Despite softening in pace at Welsh firms, the reduction in staffing was the second-fastest of the 12 monitored UK areas (slower than Yorkshire & Humber only).

Welsh private sector firms registered a further decline in outstanding business during February, thereby extending the current sequence of contraction that began in May 2022. The fall in backlogs of work was sharp overall and quickened slightly from January.

Despite being the second-slowest reduction in work-in-hand for nine months, the rate of decrease was the second-fastest at the UK level (slower than only the South East).

Average cost burdens faced by Welsh companies increased at a marked pace during February. Although slower than the UK average, the rate of inflation quickened to the fastest since May 2023 and was sharper than the series average.

Higher input prices were linked by panellists to greater raw material costs and increased wage bills.

Welsh firms recorded a sharper rise in selling prices midway through the first quarter of the year. The rate of charge inflation was the steepest since mid-2023 and broadly in line with the UK average. Companies often sought to pass-through higher costs to customers via hikes in output prices.

Service providers led the increase in selling prices, with the pace of the uptick quickening on the month.

Jessica Shipman, Chair, NatWest Cymru Regional Board, commented:

“Welsh businesses signalled a faster fall in output during February, as supply chain issues continued to weigh on activity and production capacity. Nonetheless, the pace of decline in new business eased to only a fractional pace, amid some signs of demand conditions picking up. Moreover, business confidence jumped to the strongest since November 2021 as firms looked to expand product ranges and invest in marketing efforts.

“Meanwhile, inflationary pressures ticked up to the highest since the second quarter of 2023. Higher wage bills and imported goods prices drove the increase, with firms still seeking to pass through costs to customers. At the same time, firms sought to cut costs but continuing to reduce workforce numbers as backlogs of work were depleted sharply. That said, the pace of job shedding was the least marked since August 2023 amid stronger business confidence.”