Welsh business confidence rises at highest rate in two years despite a challenging February

Welsh business confidence has reached its highest peak since November 2021,  according to the latest NatWest Wales PMI Business Activity Index.

The Index highlights a modest contraction in output at Welsh firms in February, marking the strongest decline since October of the previous year.

This downturn reflects broader challenges at the UK level, with Welsh businesses paralleling the North East as the joint-worst performers.

Despite a continued decrease in new orders, marking a ninth consecutive month of decline, February saw the slowest pace of this downturn, hinting at potential signs of a demand revival.

However, the spectre of the cost-of-living crisis looms large, dampening sales and underscoring the complex landscape Welsh businesses navigate.

The bright spot in this scenario is the significant uplift in business confidence within the Welsh private sector. Fuelled by strategic moves to extend product ranges and invest in customer base expansion, firms exhibit a robust optimism that aligns closely with UK trends.

This optimism is a testament to the resilience and adaptability of Welsh businesses in the face of adversity.

On the employment front, the trend of job shedding showed signs of easing, marking the softest drop in employment in six months.

This shift suggests a cautious but optimistic approach to workforce management, focusing on efficiency improvements and cost-cutting without compromising on potential growth opportunities.

Inflationary pressures present a significant challenge, with Welsh firms experiencing a marked increase in average cost burdens, driven primarily by higher raw material costs and wage bills.

This situation has led companies to adjust their selling prices accordingly, with a notable uptick in charge inflation, particularly among service providers.

Jessica Shipman, Chair, NatWest Cymru Regional Board, said:

“Welsh businesses signalled a faster fall in output during February, as supply chain issues continued to weigh on activity and production capacity. Nonetheless, the pace of decline in new business eased to only a fractional pace, amid some signs of demand conditions picking up. Moreover, business confidence jumped to the strongest since November 2021 as firms looked to expand product ranges and invest in marketing efforts.

“Meanwhile, inflationary pressures ticked up to the highest since the second quarter of 2023. Higher wage bills and imported goods prices drove the increase, with firms still seeking to pass through costs to customers. At the same time, firms sought to cut costs but continuing to reduce workforce numbers as backlogs of work were depleted sharply. That said, the pace of job shedding was the least marked since August 2023 amid stronger business confidence.”