Pressure on Welsh businesses eases despite weak demand, survey suggests

Nation.Cymru staff

Pressure on Welsh businesses showed signs of easing in June as cost inflation softened and the decline in business activity slowed, although firms remain cautious amid weak demand and economic uncertainty.

The latest NatWest Welsh Cymru Growth Tracker found that while private sector output continued to fall for a fifth consecutive month, the pace of decline was less severe than in May.

The survey’s Wales Business Activity Index rose from 45.8 in May to 47.4 in June. Any reading below 50 indicates activity is shrinking.

Businesses said higher prices and reduced customer confidence, driven by economic and political uncertainty, continued to weigh on activity.

Despite the modest improvement in output, new orders fell at their fastest rate for three months, prompting companies to reduce staffing levels again.

The survey also found some relief on costs, with input price inflation easing to its weakest level since March. However, costs remained well above historical averages, while firms continued to pass higher expenses on to customers through increased prices.

Jessica Shipman, chair of the NatWest Cymru Board, said there were encouraging signs that the worst of the recent slowdown may be beginning to ease.

“June’s data provided some welcome signs that pressures on Welsh business are starting to ease, with the decline in output moderating and input cost inflation softening from the elevated levels seen earlier in the year,” she said.

“While firms continued to face challenging demand conditions, driven by geopolitical uncertainty and weaker customer demand, the latest figures suggest that recent pressures on output are beginning to soften.”

However, she warned that businesses remained wary about the months ahead.

“New orders fell at a faster pace in June, contributing to further reductions in staffing levels and a softer outlook for the year ahead. Although cost inflation eased, it remained historically elevated and firms continued to increase selling prices where possible.

“With demand still subdued, many businesses will be looking for clearer signs of recovery before confidence returns.”

Compared with the rest of the UK, Welsh businesses continued to face greater challenges.

Business activity declined more sharply than the UK average, while the fall in new orders was also steeper. Confidence among Welsh firms slipped to a three-month low, in contrast with the wider UK picture where optimism improved.

Job losses

Although job losses eased to their slowest pace of the year so far, Wales still recorded the second-fastest decline in employment of the 12 UK regions monitored by the survey.

The report also found that backlogs of work continued to shrink, with outstanding business falling at the fastest rate for seven months. Only Northern Ireland recorded a steeper decline.

Despite the easing in cost pressures, Welsh firms continued to experience one of the highest rates of operating cost inflation in the UK, with only Yorkshire and the Humber and Northern Ireland reporting faster increases. Selling prices also continued to rise at one of the quickest rates across the UK regions.

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