Welsh business growth continues but output declines in October

Welsh businesses recorded their fourth consecutive month of growth in new orders during October, according to the latest NatWest Cymru Regional Growth Tracker.

However, the modest expansion came amid challenges in output, employment, and demand, painting a mixed picture for the private sector.

The Wales Business Activity Index, which tracks changes in combined manufacturing and service sector output, fell to 47.0 in October, down from 48.6 in September.

A figure below 50 indicates contraction, and this decline marked the strongest reduction in output over the past year.

Jessica Shipman, Chair of the NatWest Cymru Regional Board, explained the results:

“There are reasons for optimism for business in Wales from our October data. Inflationary pressures eased, and firms remained hopeful about new client wins and stronger demand conditions. However, softening demand led to a sharper fall in business activity and employment levels.”

Employment Challenges and Weak Demand

Employment in the Welsh private sector fell for a second month in October, with the rate of job losses the highest recorded since January.

Among the 12 monitored UK regions, Wales saw the steepest decline in staffing levels.

Companies attributed this trend to weak sales and the non-replacement of voluntary leavers.

The report also highlighted a decline in backlogs of work, which firms managed to reduce amid softer demand and fewer new orders.

This allowed businesses to focus on clearing existing workloads but raised concerns about future growth prospects.

Inflationary Pressures Ease

On a positive note, Welsh firms experienced the slowest rise in operating expenses in four years, with inflation rates below both the UK average and long-term trends.

Despite ongoing increases in raw material and transportation costs, businesses kept output price hikes moderate to remain competitive.

Welsh businesses remained optimistic about the coming year, buoyed by hopes of new client wins, business expansion plans, and stronger local demand.

However, sentiment was at its weakest level since last November and lagged behind most UK regions.

Ms Shipman noted that while the easing of inflationary pressures offers some relief, the challenges of weak client demand and job cuts underscore the need for sustained support and innovation.

Comparative UK Performance

Compared to other regions, Wales struggled with the slowest growth in new business inflows since July and the sharpest job shedding.

While inflation in Wales was among the lowest in the UK, the contraction in output and backlogs highlights the unique challenges facing the Welsh economy.