Fastest rise in Welsh business activity for a year

According to the latest NatWest Wales PMI^® data, private sector firms registered a faster expansion in output during February. That said, new business grew at only a marginal rate as client demand softened midway through the first quarter. A sharper upturn in activity led firms to raise their payroll numbers at the quickest pace since December 2018, as the reduction in backlogs of work remained strong. Slower new order growth led companies to moderate their output expectations slightly from January’s recent high.

On the price front, input costs continued to increase at a marked pace, as service providers registered a sharp rise. Firms partially passed higher costs on to clients through a strong mark-up in output charges.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors – registered 53.7 in February, up from 52.6 at the start of the year. The rise in output was partially linked to reports of efforts to build stocks and greater client demand. The upturn in business activity was the fastest for a year and was the second-strongest of the 12 monitored UK areas (behind London).

Although output rose at a sharper pace, new business increased at only a marginal rate. Nonetheless, February data indicated the first back-to-back expansion in client demand since last July as customer requests grew.

In line with a slower rise in new business, firms registered a further strong fall in the level of outstanding business during February. The reduction was faster than the UK average and in line with that seen in January.

Nonetheless, Welsh private sector companies continued to expand their payroll numbers midway through the first quarter. Firms largely attributed job creation to greater business requirements.

Input costs faced by Welsh private sector firms rose markedly in February, despite the rate of inflation easing slightly from January. Although the pace of increase softened, it was among the fastest of the 12 monitored UK areas, behind only Northern Ireland and the East Midlands.

At the same time, firms registered an accelerated rise in output charges that was the fastest for a year. Companies reportedly increased selling prices in an effort to partially pass on higher costs to clients.

Business confidence across the Welsh private sector softened in February. Although the degree of optimism was below the UK average, it was the second-highest for two years[1]. Anecdotal evidence linked positive sentiment to planned investment and hopes of further growth in client demand.

Kevin Morgan, NatWest Wales Regional Board, responded to the news:

“Welsh private sector firms signalled a pick up in the rate of business activity growth in February, amid reports of a sustained rise in new business and some efforts to build stocks. That said, new orders rose at only a marginal pace, as the upturn eased following January’s bounce-back amid challenging external demand conditions.

“As a result, business confidence softened from January and was weaker than the UK trend. Nevertheless, the rate of job creation ticked up to the fastest since December 2018, despite marked cost pressures. In an effort to partially offset higher expenses, Welsh companies raised their selling prices at the sharpest rate for a year.”

 [1] Data collection largely conducted before the escalation of the coronavirus outbreak in Europe.