Business output increase ‘hugely encouraging’

THE private sector in Wales has stepped up its growth, according to the latest PMI (purchasing managers’ index) survey from NatWest.

Business activity and new orders both rose at steeper rates in August compared to July, while employment expanded solidly.

However, business confidence regarding future output fell to the lowest level for one year, partly due to uncertainty surrounding Brexit negotiations. At the same time, operating costs continued to rise sharply, which led to a further marked increase in selling prices.

The headline Wales business activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors – registered 56.0 in August, up from 55.6 in the previous month. Anything below 50 denotes contraction.

The latest reading signalled a sharp increase in activity that was the quickest recorded since the start of the year. Sector data indicated that output expanded across both the manufacturing and service sectors. Notably, the overall upturn in activity was stronger than that seen on average across the UK.

In line with the trend for output, new business placed with Welsh private sector firms expanded at a faster pace in August. Moreover, the rate of growth accelerated to a six-month record.

The increase in Wales was the second-sharpest recorded of all monitored UK nation and regions (behind only Yorkshire).

Firmer demand conditions underpinned a further increase in staff numbers at private sector firms in Wales during August. Furthermore, the rate of payroll expansion was the joint-quickest since last October and outstripped the UK average. Encouragingly, both manufacturers and service providers noted greater employment.

Following an eight-month sequence of decline, backlogs of work broadly stabilised in August. This was similar to the trend seen for the UK as a whole.

Private sector companies based in Wales signalled a further sharp increase in operating expenses. Notably, the rate of cost inflation picked up since July and remained stronger than the long-run series average. That said, the increase was not as steep as that seen at the UK level.

Companies generally passed on higher input costs to clients by raising their selling prices. The rate of charge inflation was sharp overall, despite easing for the second month in a row.

Looking ahead, confidence towards the 12-month outlook for activity fell to the lowest level since last August. Challenging market conditions and uncertainty surrounding Brexit negotiations were both cited as key threats to growth.

Kevin Morgan, of NatWest’ board in Wales, said: “Business activity rose sharply across the Welsh private sector during August, supported by the quickest increase in new work for six months. The latest robust growth rates also placed Wales among the top performing regions across the UK.

“On the other hand, operating expenses faced by Welsh companies continued to rise sharply, adding further pressure to margins. Confidence towards the 12-month business outlook meanwhile fell to a one-year low, with a number of firms concerned that increasingly challenging market conditions and lingering uncertainty over Brexit negotiations may dampen activity in the months ahead.

“Overall this latest report is hugely encouraging and sends a positive message to Welsh businesses regarding the state of the local economy”.