Cost pressures ease for Welsh businesses in November, according to latest NatWest Regional PMI

Key Findings 

  • Rate of input price inflation cooled to the second-slowest in over three years
  • Manufacturers and service providers record substantial decreases in backlogs of work
  • Volume of new orders proves challenging for some sectors

The headline NatWest Wales Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – registered 48.5 in November, up from 45.0 in October, to signal only a marginal contraction in output at Welsh private sector firms. Companies stated that lower activity was due to weak customer demand and a further drop in new orders. The fall in output at Welsh firms contrasted with the UK average which pointed to a slight expansion in business activity for the first time since July.

Welsh firms recorded a sixth consecutive monthly contraction in new orders during November. The fall in new business was strong overall, and the second-fastest since October 2022, despite softening from the previous survey period. Companies stated that lower demand from customers led to the decrease in new business.

Manufacturers and service providers alike noted declines in new orders, with the contraction driven by a marked fall in services customer demand.

November data signalled weaker confidence regarding the outlook for output over the coming year at Welsh firms. The degree of optimism slipped further below the long-run series average and was the second-lowest for a year. Positive sentiment reportedly stemmed from planned investment in new products, but concerns regarding domestic and global demand conditions dampened expectations.

Of the 12 monitored UK areas, the North East, Northern Ireland and Scotland posted weaker optimism than Welsh firms.

The rate of job shedding across the Welsh private sector quickened during November, with firms cutting employment steeply. The fall in workforce numbers was the fastest since the start of 2021 and the sharpest of the 12 monitored UK areas.

Anecdotal evidence suggested that lower staffing numbers were due to redundancies following a reduction in new orders, alongside the non-replacement of voluntary leavers amid cost cutting efforts.

Outstanding business continued to decrease at Welsh private sector firms, thereby extending the current sequence of decline that began in May 2022. The pace of contraction eased fractionally to the slowest since July, but was still marked overall. In line with the trend for employment and amid evidence of spare capacity, Welsh companies saw the steepest drop in incomplete business of the 12 monitored UK areas.

Manufacturers and service providers alike recorded substantial decreases in backlogs of work.

Welsh companies registered a further sharp rise in cost burdens midway through the fourth quarter. Higher operating expenses were linked to increased wage bills. That said, some firms noted moderations in raw material price hikes. The rate of input price inflation slowed, with costs rising at the second-weakest pace since October 2020.

The pace of increase at Welsh firms was softer than the UK average. In fact, only the West Midlands and the North West recorded slower rates of cost inflation.

November data indicated a solid increase in output charges at Welsh companies. The rate of increase in selling prices matched that seen in October and was stronger than the long-run series average. Although firms sought to pass through costs to customers, the pace of increase was slower than the UK average.

At the sector level, manufacturers saw a decrease in selling prices, while service providers recorded a slower increase.

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

“It is positive to see cost pressures softening for Welsh businesses across November.

“Price inflation cooled to the second-slowest rate in over three years.

“Although Welsh firms saw further contractions in output and new orders, rates of decline slowed in November. Nonetheless, the decrease in new business was strong and continued to be driven by lower purchasing power at customers and challenges among clients facing high interest rates and global economic uncertainty. Moreover, the fall sparked the sharpest drop in employment for almost three years, and a weaker degree of confidence in future output growth.”