Output in the Welsh private sector has dipped into negative terrain, according to latest research from NatWest Bank.
Its Wales business activity index registered 49.4 in May, down from 51.1 in April. Anything below 50 denotes contraction. The latest data brings to an end a three-month sequence of expansion. Of the 12 monitored UK areas, Welsh firms were alone in registering lower business activity.
Welsh private sector firms did record a third successive monthly expansion in new business during May. The upturn in new orders was linked to sustained increases in client demand and new customer acquisitions. However, the rate of growth was much weaker than the UK trend which indicated a solid rise in new business.
May data signalled further strong positive sentiment regarding the outlook for output over the coming 12 months. Optimism reportedly stemmed from planned investment in expanding capacity and developing new products, alongside hopes of greater client demand.
Welsh companies registered broadly unchanged employment levels midway through the second quarter, following four successive monthly contractions. Although some firms noted the non-replacement of voluntary leavers, others stated that greater demand drove hiring.
The trend among Welsh firms contrasted with that seen across the UK as a whole, where staffing numbers rose at a modest pace. Only companies in the North East recorded a decline in workforce numbers.
Gemma Casey, NatWest ecosystem manager for Wales, said:“Welsh firms signalled a return to contraction territory in May, as output fell back into decline. New orders continued to grow, albeit at only a marginal pace. Softer demand conditions stemmed from sufficient stocks at customers and subdued client confidence. Although strongly optimistic of an increase in output over the coming year, the degree of confidence slipped to a three-month low. Meanwhile, employment was broadly stagnant as capacity pressures dissipated further.
“Cost pressures remained marked, as companies noted that increased wage bills drove inflation. Rates of input price and output charge inflation eased, however, to some of the weakest for over two years amid efforts by vendors and firms to drive new sales in an increasingly challenging demand environment.”
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