Welsh businesses signalled a slower fall in output during November, according to the latest NatWest Cymru Growth Tracker.
At 47.7 in November, 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 – was up from 47.0 in October, and signalled only a marginal contraction in output.
November data indicated a fresh decrease in new orders at Welsh firms, thereby ending a four-month sequence of growth. Lower new business was attributed by companies to economic uncertainty and relatively subdued demand conditions.
Nevertheless, firms increased their selling prices in November, with output charges rising at a faster rate than the previous survey period.
Sebastian Burnside, Chief Economist of NatWest Group, summarised the report’s findings for Business News Wales.
November data indicated a sharper increase in cost burdens at Welsh companies, amid reports of higher material and transportation fees. The rate of input price inflation was quicker than in October, but was softer than the series trend.
Jessica Shipman, Chair, NatWest Cymru Regional Board, said:
“Welsh businesses remain optimistic in their expectations for output over the coming year, despite declines in activity and new orders during November. Planned investment in new products, and facilities, alongside hopes of greater stability in economic conditions and the landscape for business decision-making supported confidence.
“Encouragingly, inflationary pressures were relatively muted in the context of historic data, despite quickening. Firms were able to raise their charges despite a challenging demand environment and partially pass-through higher costs to customers.
“Cost-cutting initiatives which have driven job losses are likely to protect margins in the short term, as businesses assess the longevity of demand fragility.”
Performance in relation to UK
The weaker pace of decline contrasted with both the UK and series averages which indicate increases in business activity.
The slower fall in business activity was linked by some to stockpiling and processing of backlogs of work, but weak demand conditions continued to stifle output.
Meanwhile, the contraction in new orders was only marginal, but was the steepest of the 12 monitored UK regions and nations. The drop was led by service providers, however, as manufacturers recorded a rise in new sales.
With regards to the outlook for output over the coming year, Welsh companies remained optimistic in their expectations in November. Although the degree of confidence slipped to the lowest for a year, firms were hopefully of a stabilisation in demand conditions and planned to invest in new product lines. Of the monitored UK areas, only Yorkshire & Humber, Scotland and Northern Ireland recorded weaker confidence in the outlook for output.
Welsh private sector firms registered a third successive monthly decrease in employment midway through the fourth quarter. The pace of job shedding quickened to the sharpest since January and was the steepest of the 12 monitored UK areas. Companies noted that lower new order inflows and efforts to cut costs led to the reduction in workforce numbers.
Meanwhile, there was greater evidence of spare capacity at Welsh businesses, as backlogs of work were depleted again and at a faster rate. The marked drop in the level of incomplete work was the quickest for three months and the greatest of the monitored UK areas. Firms were reportedly able to clear backlogs of work amid subdued customer demand.
At the same time, the pace of increase in input prices at Welsh businesses was the joint-slowest of the 12 monitored UK areas (alongside the East of England). Despite quickening, the uptick in output prices was slower than both the historic series and UK averages, with only the West Midlands registering a weaker rise of the 12 monitored areas.
