Welsh companies signalled expansion in new business inflows during October, according to the latest NatWest Cymru Regional Growth Tracker.
The expansion, which is the fourth month of growth in succession for the region, also coincided with reports that there is further optimism among Welsh companies regarding output for the coming year, with confidence driven by hopes of new client wins. But the sequence of growth was the softest since July, and October saw a stronger fall in output across the Welsh private sector.
At 47.0 in October, 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 – fell from 48.6 in September. The decline was the second in as many months and the strongest recorded in exactly one year.
Firms also mentioned a slowdown in new order growth at the start of the fourth quarter, while the muted picture contributed to steeper reductions in employment and outstanding business.
On the price front, firms saw operating expenses rise at the softest rate in four years, which helped to ease the rate of output charge inflation in October.
Jessica Shipman, Chair, NatWest Cymru Regional Board, said: “There are reasons for optimism for business in Wales from our October data.
“Positively, inflationary pressures eased and below average uptick in cost burdens led to only moderate hikes in selling prices as private sector firms attempted to remain competitive and drive sales.
“Feedback also suggests that confidence for the year ahead is still positive, with that confidence underpinned by hopes of new client wins, stronger demand conditions and business expansion plans.
“But softening demand conditions in the Welsh private sector at the start of the final quarter of 2024 gave way to a stronger reduction in business activity. The fall in output was solid and the most pronounced in a year, as clients mentioned that new order growth was weak. In turn, firms turned to completing backlogs of work in an attempt to boost output.”
Performance in relation to UK
Welsh companies signalled a marginal expansion in new business inflows during October. While the sequence of growth has now extended into a fourth month, the increase was the softest since July. Panellists stated that higher sales were often attributed to improved local demand, however, there was concern regarding overseas sales. The pace of increase was also softer than the average seen in the UK.
Latest data indicated further optimism among Welsh companies regarding the outlook for output over the coming year. Confidence was reportedly underpinned by hopes of new client wins, stronger demand conditions and business expansion plans. The level of positive sentiment was the softest since last November and was among the weakest of the monitored UK areas.
Welsh private sector firms registered a second successive monthly contraction in employment levels at the start of the fourth quarter. The decrease in workforce numbers was sharp and the fastest since January. Moreover, of the 12 monitored UK areas, Wales recorded the strongest rate of job shedding. Anecdotal evidence suggested that lower staffing numbers were linked to the non-replacement of voluntary leavers and weak sales.
As has been the case since May 2022, backlogs of work at Welsh firms contracted in October. The fall in incomplete business was strong overall, and quickened from that seen in September. The pace of decline was also the sharpest of the monitored UK areas. Companies attributed the latest depletion to weak client demand and lower new order inflows, which allowed them to catch up on existing orders.
October data signalled another steep increase in cost burdens faced by Welsh private sector firms. That said, the rate of input cost inflation eased to the lowest in exactly four years. Alongside higher raw material prices, firms noted that greater transportation costs drove inflation. The pace of inflation was weaker than both the long-run series and UK averages.
Welsh businesses registered another monthly increase in output charges at the start of the fourth quarter. The rate of inflation eased from that seen a month prior, and was moderate overall. Moreover, the pace of increase in Wales was the second-slowest of the 12 monitored UK areas, ahead only of Northern Ireland.
