Welsh Business Activity Grows Amid Challenges in February

Wales sees strongest business activity growth in six months, but job losses and inflation concerns persist

The Welsh private sector experienced a continued rise in business activity in February, marking its second consecutive month of growth, according to the latest Cymru Growth Tracker from NatWest. Despite the positive momentum, businesses faced ongoing challenges, including declining new orders, rising costs, and job cuts.

The Wales Business Activity Index, a key indicator measuring output across manufacturing and services, rose to 51.5 in February from 50.7 in January—its highest reading in six months. The data suggests that businesses are expanding despite sluggish demand and broader economic headwinds.

However, the report also highlights a fourth consecutive month of decline in new business, with demand from both domestic and international markets faltering. Welsh firms linked the downturn to economic uncertainty, weakened consumer confidence, and reduced orders from the EU.

Optimism for the Year Ahead

Despite near-term challenges, business confidence among Welsh firms has strengthened, reaching a five-month high. Companies are optimistic about the year ahead, citing plans for strategic expansion, productivity improvements, and new customer acquisitions as key drivers of future growth.

Jessica Shipman, Chair of the NatWest Cymru Regional Board, noted that while new business remains under pressure, optimism for long-term growth is evident.

“Despite an overall decline in new business, Welsh private sector activity grew at a stronger pace in February, buoyed by improved demand in specific sectors,” Shipman said. “Furthermore, output growth is anticipated to be sustained over the next 12 months as companies express greater optimism.”

Job Cuts and Inflationary Pressures

The report also highlights ongoing employment challenges, with Welsh firms reducing payrolls for the sixth consecutive month. Job losses accelerated in February, driven by factors such as redundancies, voluntary departures, and shifts in labour market policies. Despite this, the rate of job losses in Wales remained less severe than in the UK as a whole.

Inflationary pressures continued to pose a challenge, with rising labour costs, higher import prices, and increasing raw material costs pushing input price inflation to a ten-month high. However, Wales recorded the slowest rate of inflation among the 12 monitored UK regions.

Businesses also raised prices for goods and services in February, with output charges rising at the fastest pace in nearly a year. While these increases remain below UK-wide averages, firms attributed them to the need to pass on higher costs to customers.

Wales Outperforms UK in Business Activity Growth

Despite the hurdles, Welsh business activity outpaced that of the UK overall in February, a rare positive sign in an otherwise mixed economic picture. The decline in new orders was the mildest among the 10 UK regions and nations that recorded contractions, and confidence in future activity levels was stronger than in previous months.

Although employment challenges persist, the combination of steady output growth and strategic expansion plans suggests that Welsh businesses are navigating economic headwinds with cautious optimism.