Welsh Business Activity Shows Signs of Stabilization in December
New data from the Cymru Growth Tracker, released by NatWest, reveals a slight improvement in the economic landscape for Welsh businesses in December 2024. While contractions in output and new orders persisted, the pace of decline slowed, signaling a less severe downturn as the year came to a close.
Slower Declines in Activity and New Orders
The Wales Business Activity Index, which measures monthly changes in output across the region’s manufacturing and service sectors, rose to 48.9 in December, up from November’s 47.7. Although still below the neutral 50 mark, indicating contraction, the December reading marked the softest decline in a four-month contraction streak.
New business volumes saw only a slight decrease, bolstered by reports of successful efforts to attract new customers. Despite this improvement, economic uncertainties and concerns about rising costs tempered expectations for future growth.
Employment Declines Amid Cost Pressures
Subdued demand, growing spare capacity, and intensified cost pressures prompted businesses to reduce staffing levels. The rate of job cuts accelerated to its fastest pace since September 2020, driven by cost-reduction strategies and a reluctance to replace voluntary leavers. December also saw a significant drop in backlogs of work, underscoring excess capacity across Welsh businesses.
Inflationary Pressures and Price Adjustments
Input costs for Welsh firms rose at their fastest rate since April 2024, driven by higher supplier prices, increased rents, and rising wage bills. Businesses responded by raising their selling prices at the quickest pace since May 2024. However, concerns about the impact of rising wage bills in 2025 have sparked fears of additional strain on profit margins in the coming months.
Business Optimism Dips
Despite efforts to stabilize, business confidence in Wales reached its lowest point since November 2023. Optimism was dampened by concerns about ongoing economic challenges and the potential for continued cost increases. The degree of confidence among Welsh firms was below both the long-term series average and the UK average.
Regional Comparison
Compared to the broader UK, Welsh businesses faced contrasting conditions. While the UK as a whole experienced marginal growth in output, Wales recorded a second consecutive month of decline in new orders, albeit at one of the weakest rates among the ten monitored UK regions.
Employment trends further highlighted the disparity. Welsh firms recorded the steepest job cuts among the 12 UK regions monitored, alongside the quickest reduction in incomplete work. On the pricing front, while input cost inflation in Wales was slightly below the UK average, selling price inflation remained among the slowest across the regions.
Expert Insight
Jessica Shipman, Chair of the NatWest Cymru Regional Board, commented on the findings:
“Welsh businesses signaled a slightly brighter end to 2024 as contractions in output and new orders eased. Some success in engaging new customers helped mitigate the decline in new business, and firms are projecting growth in activity for the year ahead.
However, retrenchment efforts intensified, with the fastest drop in employment since September 2020 and a notable reduction in backlogs of work. Inflationary pressures also strengthened, adding to concerns about rising wage bills in 2025, which could further strain margins.”
Outlook
As Welsh businesses look ahead to 2025, the focus remains on navigating economic challenges, balancing cost pressures, and capitalizing on opportunities to stabilize and grow. Despite the hurdles, the easing pace of decline offers a glimmer of optimism for the region’s economic trajectory.
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