Welsh businesses report further monthly decline in output

Output in Wales continued to fall in July amid a sharper decline in new business, according to the latest NatWest Wales Business Activity Index.

The latest decline extended the current sequence to three months but was the lowest in this period.

Businesses that suffered a decrease in activity last month reported “muted demand conditions” and a drop in new orders.

The slight downturn recorded in Wales contrasted with a marginal expansion seen at the UK level.

July’s data also confirmed a sharper decrease in new orders at Welsh firms, with the pace of decline accelerating to the steepest since October 2022.

The fall in new business was linked to weaker demand conditions and the impact of high interest rates and the greater cost of living.

Of the 12 UK areas monitored in the index, Welsh firms registered the quickest contraction in new orders.

Manufacturers saw little change in new orders, but service providers recorded a faster decrease in new business.

Upbeat

Welsh private sector firms however remained upbeat regarding the outlook for the coming year due to hopes of greater client demand and investment in new staff.

Although the degree of optimism was above the current average, it dropped to the lowest since January and was weaker than the UK trend.

July’s data indicated a marginal expansion in workforce numbers at Welsh firms, the first in 2023 so far and the sharpest since October 2022.

The rate of job creation was broadly in line with the UK average, as Welsh service providers drove the upturn.

Companies stated that greater employment stemmed from efforts to fill long-held vacancies.

Welsh firms registered a fifteenth successive monthly decrease in backlogs of work during July, with the pace of contraction little-changed from that seen in the previous survey period.

Businesses continued to note ascribe the ability to complete unfinished business was due to weak client demand and a further decline in new orders.

The rate of decline in Wales far exceeded that seen at the UK level.

Gemma Casey, NatWest Ecosystem Manager for Wales, said: “Welsh firms faced a difficult start to the second half of the year, as output remained in contraction and new orders fell at a sharper rate. Weak demand conditions and pressure on customer purchasing power from the rising cost of living and higher borrowing costs weighed on overall sales.

“Nonetheless, firms were optimistic regarding the future outlook, as employment returned to growth. The filling of long-held vacancies supported another marked decline in outstanding business.

“Meanwhile, inflationary pressures remained well below the levels seen throughout 2021 and 2022. Although input costs rose at a slightly faster pace, the rate of inflation stayed softer than the long-run average as some raw material costs were reported to have fallen. That said, efforts to stimulate demand put strain on margins and reduced pricing power at firms.”

The NatWest Wales Index is compiled by S&P Global from responses to questionnaires sent to Welsh companies that participate in S&P Global’s UK manufacturing and services PMI surveys.

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.