Welsh Business Activity Expands in January as Confidence Grows
Business activity in Wales saw renewed expansion at the start of 2025, marking the first increase since August 2024, according to the latest Cymru Growth Tracker report from NatWest. The report signals a positive shift for the Welsh economy, with firms showing optimism despite ongoing challenges in employment and cost pressures.
Output Growth Returns After Five-Month Decline
The Wales Business Activity Index, which measures month-on-month changes in the combined output of the manufacturing and service sectors, rose to 50.7 in January, up from 48.9 in December. This marks the third consecutive month of improvement and the first time the index has surpassed the neutral 50.0 mark since last summer, indicating a marginal expansion in business activity.
Jessica Shipman, Chair of the NatWest Cymru Regional Board, noted that the return to growth was driven by improvements in sales across specific sectors.
“Firms remained cautious regarding employment, but confidence is growing that demand conditions will strengthen as the year progresses,” Shipman said. “Although Welsh businesses are still facing cost pressures, the rate of increase in input costs was the slowest of all 12 monitored UK regions.”
Employment and Backlogs Show Signs of Stabilization
Despite the positive signs in output, employment figures continued to decline. January marked the fifth consecutive month of job losses in the Welsh private sector, though the rate of workforce reduction eased compared to previous months. Only the East of England and the West Midlands recorded steeper job cuts.
Similarly, backlogs of work continued to decline, albeit at a slower pace than before. Businesses attributed this to lower new orders, which allowed them to clear existing workloads at a faster rate than both the historical series average and the overall UK trend.
Inflation Pressures Persist, But Wales Sees Slowest Cost Increase
Inflationary pressures intensified in January as businesses faced rising costs due to unfavorable exchange rates, higher labor expenses, and supplier price hikes. However, the rate of cost inflation in Wales remained the lowest among the 12 UK regions included in the survey.
Selling prices for goods and services increased at the fastest rate since March 2024, as businesses sought to pass on rising costs to customers. While still below the UK average, this increase highlights the ongoing challenge of maintaining profit margins amid fluctuating economic conditions.
Welsh Business Performance in the UK Context
The Welsh economy’s resurgence aligns with the broader UK trend, where business activity also saw expansion in January. However, only four of the 12 monitored UK regions—London, the North East, the South West, and Wales—reported a rise in activity, indicating that economic recovery remains uneven across the country.
Although Welsh firms recorded a marginal contraction in new orders for the month, the decline was less severe than in most other UK regions. Of the ten areas that saw a drop in sales, Wales experienced the slowest rate of decline, suggesting that demand is beginning to stabilize.
Outlook for 2025
Businesses in Wales remain optimistic about the year ahead, with expectations of stronger economic conditions and plans to expand company capacity. Among the 12 UK regions, only the North East, Scotland, and Northern Ireland exhibited weaker confidence in future growth.
The recent interest rate cut by the Bank of England, along with anticipated further reductions, is expected to support businesses by easing borrowing costs and stimulating investment. While challenges persist, particularly in employment and inflation, the latest data signals a cautiously optimistic start to 2025 for Welsh businesses.
