Private sector output in Wales increased for the second consecutive month in August, although demand remained fragile and employment fell at the fastest rate of any monitored UK area.
The latest NatWest Cymru Growth Tracker showed that the headline Wales Business Activity Index recorded 50.4 in August, down slightly from 50.5 in July.
The seasonally adjusted index measures the month-on-month change in the combined output of Wales’ manufacturing and service sectors. A reading above 50 indicates growth.
While the latest figure signalled a slight increase in output, the pace of growth was below the UK average.
New orders fall for seventh month
Welsh businesses recorded another decline in new sales midway through the third quarter, extending the current period of contraction to seven months.
The reduction was modest but accelerated from the previous month. It also contrasted with the wider UK trend, which showed a slight rise in new business.
Businesses continued to work through outstanding orders, with backlogs falling at a slightly faster rate. The reduction in work-in-hand was the steepest among the 12 UK areas monitored by the tracker, signalling little pressure on firms’ capacity.
Jessica Shipman, Chair, NatWest Cymru Board, said:
“Welsh businesses saw further output growth in August, but demand conditions remained challenging. Firms were able to work through their backlogs with little strain on capacity, as the pace of decline in new sales gained speed. Hesitancy to spend on non-essential purchases and uncertainty at customers also dampened business confidence which slipped to a 10-month low.
“In fact, companies continued to prioritise cost-cutting efforts amid a slight hike in cost inflation. Employment fell at a sharper rate as uncertainty in the outlook dampened hiring intentions further.
“That said, although sharpening, the quicker pace of cost inflation was met by a similar acceleration in the rate of increase in selling prices as firms sought to protect margins. Inflationary pressures were also much less marked than seen in the second quarter, offering some respite from the substantial price hikes seen earlier in the year.”
Employment falls at fastest UK rate
Welsh companies reduced their workforce numbers again in August, continuing a period of job losses that began in September 2024.
The rate of decline accelerated and was described as strong overall. Wales recorded the fastest reduction in employment of the 12 UK areas monitored.
Business confidence also weakened during August. Although companies continued to expect activity to grow over the next year, optimism fell to its lowest level since October 2025.
The level of confidence was the second lowest among the monitored UK areas, ahead of only Northern Ireland.
Inflationary pressures increase slightly
Input costs for Welsh firms continued to rise midway through the third quarter.
The rate of inflation increased slightly from July’s five-month low. While it remained above the survey’s long-term average, it was below the UK trend and the higher rates recorded between March and June 2026.
Businesses also increased their selling prices at a fractionally faster rate than in July as they sought to protect profit margins.
The rate of output charge inflation was above the series trend and matched the UK average.
