Output growth in the private sector in Wales increased only marginally in July as business activity slows, according to the latest PMI data from NatWest Bank.
The Wales business activity index - which measures the month-on-month change in the combined output of the manufacturing and service sectors - registered 51.6 in July.
This was down from 53.6 in June signalling a marginal upturn in output across the Welsh private sector. Anything below 50 denotes contraction.
Read more: Welsh retail footfall still below pre-pandemic levels as inflation knocks consumer confidence
The rise in business activity was the slowest in the current 17-month sequence of growth and slightly lower than the UK average.
Welsh firms reported that higher output was linked to greater client demand and a rise in new order inflows.
Firms in Wales also registered further expansion in new business during July. The rate of growth quickened slightly from June's 16-month low.
Welsh firms were among only three areas in the UK to report an upturn in new orders, alongside the south east of England and London. Anecdotal evidence found that the increase in new business stemmed from a modest improvement in client demand.
The rise in new orders was broad based, with manufacturers and service providers recording an increase.
July data signalled further upbeat expectations regarding the outlook for output over the coming year among Welsh private sector firms. The level of business confidence was higher than the UK average and the strongest for three months.
Companies attributed greater optimism to hopes of price and supply chain stability, alongside increased client demand.
Welsh private sector firms recorded a strong upturn in employment at the start of the third quarter. The rate of job creation was broadly in line with June, but slower than the UK average. Companies stated that higher workforce numbers were linked to a further uptick in client demand and new business.
Service providers registered a sharper increase in employment compared to manufacturers.
The level of outstanding business at Welsh private sector firms fell for the third consecutive month in July.
The decrease in work-in-hand quickened to the fastest since February 2021 and contrasted with the UK average which pointed to broadly unchanged levels of incomplete business. Easing demand pressures and sufficient capacity reportedly allowed firms to work through their backlogs.
July data indicated a softer pace of cost inflation across the Welsh private sector. Although the pace of increase remained historically elevated and quicker than in any period before October 2021, it was the slowest since then. Higher input prices were linked to greater energy, fuel, material and wage costs.
The rate of inflation in Wales was markedly higher than other parts of the UK, with the exception being Northern Ireland and the south east of England.
NatWest ecosystem manager for Wales Gemma Casey said: "Welsh firms continued to register output growth during July, as the upturn in new business regained pace. That said, the respective expansions were subdued in the context of those seen over the past year as price pressures softened demand conditions.
"Despite signs of spare capacity and a decrease in backlogs of work, companies increased workforce numbers strongly and recorded a greater degree of confidence in the year ahead outlook for output.
"Amid hopes of greater price stability, firms reported the slowest rise in input costs since September 2021. The rates of increase remained historically marked, however, and faster than any seen before October 2021 as inflationary headwinds endure."
Read more:
Welsh business confidence grows as firms upbeat about their trading prospects
Life sciences firm Creo Medical forecast strong revenue growth
The projects which make up the much talked-about £1bn regeneration programme in Swansea
The future of the Welsh town with the lowest economic growth in a decade
