New business increases marginally in Wales in June

According to the latest NatWest Wales PMI^® data, private sector firms continued to signal an increase in business activity in June. The marginal expansion was supported by a further upturn in new orders, albeit one of the slowest since July 2016. Nonetheless, employment rose further, with the rate of job creation accelerating slightly despite a third successive contraction in backlogs. On the price front, despite a faster rise in costs, output charges rose at the slowest rate since the start of 2016. Meanwhile, business confidence eased following May’s 12-month high.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors –  registered 51.5 in June, up slightly from 51.2 in May. The latest headline figure indicated a marginal increase in business activity that was one of the weakest in the current sequence of expansion that began in August 2016. Nonetheless, the region posted the quickest upturn across the 12 monitored UK areas.

Welsh private sector firms continued to register a marginal rise in new business in June, with the rate of expansion little-changed from that seen in May. Although firms recorded an increase in client demand, some panellists stated that growth was weighed on by a lull in sales following Brexit stockpiling earlier in the year. The average for the second quarter eased from that seen in the opening three months of the year, but remained above that seen for the UK as a whole.

Employment across the Welsh private sector increased for the fourth month running in June, with the rate of job creation quickening to the strongest in this sequence. The rise in workforce numbers was attributed to a sustained upturn in new business.

Meanwhile, backlogs of work contracted for the third successive month, with the rate of decline accelerating to the fastest for a year.

Input prices faced by Welsh private sector firms rose further in June. The rate of inflation picked up to a three-month high and was marked overall. A weaker pound that pushed up imported component prices, as well as higher supplier costs, were reportedly behind the latest rise.

Firms, however, struggled to pass higher costs on to clients amid softer demand conditions, as output charges rose at the slowest pace since January 2016.

Business confidence also softened in June. That said, the level of optimism among private sector firms was in line with the series trend and strong overall. Although firms were buoyed by new product launches, Brexit uncertainty and less robust demand dragged on expectations.

Kevin Morgan, NatWest Wales Regional Board, commented:

“Welsh private sector firms held on to growth in business activity in June, posting the fastest expansion of the 12 monitored UK areas. New orders rose marginally as client demand continued to increase. However, concerns surrounding a lull in sales following Brexit stockpiling earlier in the year were highlighted by panellists.

“Meanwhile, although input prices faced by Welsh firms rose at a marked and faster pace, companies struggled to pass on higher cost burdens to clients. Selling prices increased at the softest rate since the start of 2016 as firms sought to entice greater inflows of new work.”