Business activity in Wales has fallen for the first time in over 18 months. The latest PMI data from NatWest Bank shows a drop in output across the Welsh private sector - the first time since February 2021.
The Wales business activity index - which measures the month-on-month change in the combined output of the manufacturing and service sectors - registered 48.1 in August.
This was down from 51.6 in July signalling a fall in output amid renewed contraction in new business. Anything below 50 denotes contraction.
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Welsh firms said the fall was due to weak client demand and a fall in new orders, with the rate of decrease in output quicker than the UK average.
New orders received by Welsh private sector firms declined for the first time in a year-and-a-half in August. This was due to weak client demand and reduced customer purchasing power amid inflation and rising prices.
At the sub-sector level, manufacturers and service providers recorded a fall in new business.
Welsh private sector firms recorded a less positive outlook on the year-ahead midway through the third quarter.
Business confidence was also the lowest it has been since March 2020, when the introduction of lockdown measures first began.
Despite hopes of supply chain stability, positive sentiment was weighed down by concerns of subdued client demand and surging costs.
Companies started a further upturn in workforce numbers across the Welsh private sector, linked to firms expanding capacity. The rate of job creation was broadly in line with the UK average.
However, the pace of job creation slowed to the joint-softest in 2022 to date, as some firms reported the non-replacement of voluntary leavers.
The level of outstanding business at Welsh private sector firms fell for the fourth consecutive month in August. Work-in-hand saw the sharpest fall since November 2020 and was steeper than the UK average. Easing demand pressures from new orders reportedly allowed firms to work through their backlogs.
Private sector firms in Wales registered another marked monthly increase in input prices during August. Although the increase in cost burdens was among the sharpest on record, it was the slowest since May 2021. Higher input prices were linked to hikes in energy, fuel, wage and material costs.
The rate of inflation in Wales was markedly higher than other parts of the UK, with the exception of Northern Ireland and the South East.
NatWest Wales regional board Kevin Morgan said: "Welsh private sector firms signalled a further loss of growth momentum in August, as output and new orders returned to contraction territory for the first time in a year-and-a-half.
"Weak demand conditions stemming from surging inflation and strain on customers' disposable incomes led to a solid fall in new business. In response, output expectations slumped and firms looked to cut costs as employment grew at the joint-slowest pace this year."
He added: "Prices remained historically elevated as energy, fuel and wage costs spurred on inflation. Welsh firms saw some of the sharpest hikes in costs and selling prices across the UK, despite rates of inflation easing again."
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