Business activity in Wales continued to contract last month as output and new orders fell again. The latest PMI data from NatWest Bank saw output across the Welsh private sector decline in October as firms linked the decrease to weak client demand and economic uncertainty.
The Wales Business Activity Index - which measures the month-on-month change in the combined output of the manufacturing and service sectors - registered 49.1 in October (the start of the fourth quarter), up from 47.7 in September. Anything below 50 denotes contraction.
Welsh firms, which recorded a slower fall in output than the UK as a whole, said this was due to the arrival of delayed inputs and the processing of backlogs of work.
Read more: Property professionals less positive about house prices in Wales survey shows
New orders received by Welsh private sector companies in October declined for the third consecutive month, at the fastest contraction since January 2021 and sharper than the UK average. This was due to economic uncertainty and hesitancy or postponements among clients.
Business confidence among Welsh firms also slumped to the lowest level since data collection began in July 2012. Those that were optimistic cited new product launches and hopes of price stability. However, concerns over wider economic conditions in the UK and globally, as well as a fall in non-essential spending among customers, weighed on confidence.
Companies stated a further increase in workforce numbers across the Welsh private sector in October, linked to firms expanding capacity. Yet, the rate of job creation slowed to the softest since May 2021, as some firms reported weak client demand.
The level of outstanding business at Welsh private sector firms fell again at the start of the fourth quarter - the sharpest fall since July 2020. Easing demand pressures from new orders reportedly allowed firms to work through their backlogs.
With the exception of Northern Ireland, Welsh companies registered the sharpest fall in incomplete business of the 12 monitored UK areas.
While, operating expenses increased at a marked pace in October, the rate of inflation lost momentum. Higher cost burdens were often attributed to greater utility, material, wage and fuel prices. Some companies mentioned that currency weakness had exacerbated price hikes for imported goods.
Welsh firms registered the third-fastest rise in input costs of the 12 monitored UK areas, with only Northern Ireland and the East Midlands registering quicker increases.
NatWest Wales regional board Kevin Morgan said: "Welsh firms indicated a further challenging month in October, with demand conditions weakening and confidence slumping going into the final stages of 2022. Hesitancy and postponements among customers weighed heavily across the private sector, with output contracting at a slower pace due to the clearance of backlogs of work rather than any pick-up in demand. Firms also scaled back the rate of job creation for the fourth month running, as employment rose at the slowest pace since May 2021."
He added: "Meanwhile, pressure on margins and weak demand led firms to push up their selling prices despite a softer uptick in input costs. Inflationary pressures in Wales remain marked and well above the historic trend."
Read more:
Brexit deal should be renegotiated says British Chambers of Commerce
Welsh delivery firm opens new parcel depot following significant growth
The Welsh businesses giving cost of living payments to their employees
Pembroke net zero centre could add millions to Welsh economy - report
Welsh construction expected to slow down for first time since pandemic
