Welsh business growth slows despite increased confidence

Welsh businesses recorded a slower increase in output and new orders in April, alongside mounting cost burdens, according to the latest NatWest Wales Business Activity Index.

Despite these challenges, business confidence has risen to its highest level since November 2021.

The index, which gauges changes in the combined output of the region’s manufacturing and service sectors, registered a marginal growth at 51.1, down from 52.0 in March.

This marks the third consecutive month of business activity growth, albeit at a modest pace.

New business inflows have expanded for the second month in a row, with companies attributing this to higher demand and increased customer activity. However, the rate of growth has slowed since March’s 10-month high and is also weaker than the UK average.

Notably, Welsh firms have expressed stronger expectations for future output.

Optimism is reportedly driven by planned investments in marketing and sales initiatives, anticipated upticks in client demand, and new product launches. This confidence, the strongest seen since November 2021, exceeds the UK trend level.

Despite the optimism, Welsh firms recorded a fourth consecutive monthly decline in employment at the start of the second quarter.

This decrease, largely due to cost-cutting efforts and non-replacement of voluntary leavers, was the only one registered in the UK, which overall saw a solid upturn in staffing numbers.

“Companies were challenged as inflationary pressures regathered speed, with selling prices rising at the fastest rate for three months,” noted Kevin Morgan of the NatWest Wales Regional Board. “Hikes in supplier and end-customer prices are likely to exacerbate obstacles to growth as client spending may be squeezed further.”

Furthermore, businesses in Wales saw a sharp decrease in the level of outstanding business. The decrease, linked to sufficient capacity to process new orders promptly, contrasts with the unchanged levels of unfinished business in the UK average.

While Welsh firms are facing substantial increases in input costs, driven by rising material and labour expenses, they have managed to pass these costs onto their clients, resulting in increased prices.

Despite the ongoing challenges, Morgan noted that Welsh companies remain “strongly upbeat” in their expectations for the coming year, with optimism improving to the greatest level since late-2021.