New business in Wales rises at quicker pace in March, but activity growth softens

The latest NatWest Wales PMI^® data, released today, signalled a slower rise in output across Wales in March.

Wales is performing more strongly than the broad stagnation seen across the UK as a whole, with new work expanding at the quickest rate for six month however the increase was softer than the series trend.

The rate of new business growth meanwhile picked up to a six-month high at the end of the first quarter of 2019 as clients continued to stockpile. Subsequently, firms registered a rebound in job creation and a further rise in backlogs of work. That said, private sector firms remained cautious regarding their output expectations for the year ahead amid ongoing Brexit uncertainty.

Meanwhile, input price inflation accelerated to a six-month high amid higher raw material and utility costs, whilst output charges rose at a softer pace.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors –  posted 52.9 in March, down from 54.2 in February, but still indicating a solid rise in output at the end of the opening quarter of the year. The upturn was the second-strongest of the 12 monitored UK areas (behind only the North West).

In contrast, new business growth accelerated in March. The rise in new orders was solid and the fastest for six months. Furthermore, the increase in new work was the quickest of the 12 monitored UK areas for the second successive month. Panellists linked the expansion to stockpiling activity at clients in preparation for Brexit. However, some also noted that Brexit uncertainty had weighed on client demand.

In line with a stronger rise in new business, private sector Welsh firms signalled a renewed increase in workforce numbers in March, following back-to-back monthly declines at the start of the year. Though marginal, the rate of job creation was faster than both the UK and series trends.

Further signs of stretched capacity were evident through a second consecutive monthly increase in backlogs. The rate of accumulation was the second-quickest since February 2017, despite being only marginal.

On the price front, input price inflation remained elevated in March, with the pace of increase picking up to a six-month high.

Output charges continued to increase in March, and at a rate that was faster than both the series and UK-wide averages.

Finally, business confidence moderated in March. Expectations remained subdued amid ongoing Brexit uncertainty, which has led to hesitancy among clients to commit to projects. Furthermore, the degree of optimism was the second-lowest across the UK, ahead of only Northern Ireland.

Kevin Morgan, NatWest Wales Regional Board, commented:

“Encouragingly, Welsh private sector firms noted a stronger rise in new business in March, showing resilience in comparison to the broad stagnation of client demand seen at the UK level. Output continued to rise solidly, with many attributing greater demand to stockpiling among clients in the led up to Brexit. However, underlying issues surrounding Brexit uncertainty and customer hesitancy to commit to projects were highlighted by muted output expectations for the year ahead.

“Nonetheless, pressure on capacity led to renewed job creation; a second successive rise in backlogs drove firms to hire more temporary staff.

“Input costs rose at a sharper pace but selling prices rose at a softest rate for four months in March, suggesting a stronger squeeze on margins.”