Business activity across Wales' private sector returned to growth last month after a slight rise in demand as inflationary pressures eased, new figures suggest. According to the latest Wales Business Activity Index from NatWest, Welsh firms saw a renewed rise in demand halfway through Q1 2023 following a rocky start at the beginning of the year.
Despite the marginal rise, the seasonally adjusted index - that measures the month-on-month change in the combined output of the region's manufacturing and service sectors - registered 50.7 in February, up from 47.7 in January. Anything below 50 denotes contraction.
New orders received by Welsh private sector companies fell again last month, though some companies noted there were signs of stronger demand conditions. The rate of expansion was only marginal overall, however, and slower than the UK average. Although firms continued to mention subdued demand conditions, some companies noted signs of an improvement in client enquiries.
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Business confidence was the highest in almost a year, though slightly below the UK average, as Welsh private sector firms were positive about the outlook for output over the coming year. They were also optimistic of an uptick in demand conditions, investment in marketing and new product launches.
Employment fell for a second successive month in February as the rate of job shedding quickened to the fastest rate since January 2021. The fall in workforce numbers was attributed to lower business requirements as firms did not replace voluntary leavers, and some staff were let go amid cost cutting measures. Of the 12 monitored UK areas, Wales registered the sharpest decline.
The level of outstanding business fell for a tenth consecutive month which was linked to weak client demand. Manufacturers and service providers signalled a fall in incomplete business, with goods producers recording the sharper decrease. While operating expenses increased at a marked pace in February. High cost burdens were attributed to great material, supplier and utility costs.
That said, the rate of increase eased to the slowest since April 2021 and reflected the broader UK trend which also indicated a softer uptick in costs. Welsh service providers recorded a much faster rise in input prices than their manufacturing counterparts.
Kevin Morgan, NatWest Wales Regional Board, said: "Welsh firms registered a return to growth of output in February, as new business fell at only a fractional pace. Some reports of improving demand conditions emerged as inflationary pressures softened again. Nonetheless, spare capacity remained across manufacturers and service providers, with companies cutting staffing numbers at the sharpest rate since the start of 2021.
"Firms were more upbeat regarding future output, however. Partially supporting greater expectations for activity was a softer rise in cost burdens. Input prices and output charges rose at historically elevated paces, but at the slowest rates since the second quarter of 2021."
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