Welsh business activity growth has slowed amid softer demand conditions, according to the NatWest Wales Business Activity Index.

The index is a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – registered 57.1 in September, down from 58.0 in August, to signal a sharp expansion in output across the Welsh private sector. The rate of growth in business activity was the steepest of the 12 monitored UK areas, despite easing to a six-month low. Where an increase in output was noted, firms attributed this to a sustained rise in client demand. That said, raw material and labour shortages weighed on the overall upturn.

Welsh private sector firms signalled another monthly increase in new business at the end of the third quarter. Higher new orders were often linked to stronger demand following the further easing of COVID-19 restrictions. The rate of growth softened to the slowest for six months. That said, the marked expansion in new business was the strongest of the 12 monitored UK areas.

September data indicated a marked degree of business optimism across the Welsh private sector. Anecdotal evidence suggested that positive sentiment was due to hopes of stronger client demand and new product development. Although the level of confidence was above the series average, it was weaker than the UK trend.

Welsh private sector businesses signalled a steep expansion in employment at the end of the third quarter. The rise in staffing numbers was reportedly driven by greater business requirements and a need for additional workers to process incoming work. The rate of job creation was the second-fastest on record and, of the 12 monitored UK areas, was only outpaced by London.

September data signalled a substantial increase in the level of outstanding business across the Welsh private sector. Alongside a marked upturn in new orders, firms linked the expansion in backlogs of work to raw material and labour shortages. The rate of growth in incomplete business was the fastest of the 12 monitored UK areas.

Welsh private sector firms indicated a sharper rise in input prices at the end of the third quarter. The rate of inflation quickened fractionally to the second-fastest since data collection began in January 2001. The increase in cost burdens was generally linked to raw material shortages, steep supplier price hikes and higher wage bills. Of the 12 monitored UK areas, only companies in Northern Ireland registered a sharper uptick in input prices.

September data signalled another marked monthly increase in selling prices across the Welsh private sector. The rate of charge inflation accelerated to the sharpest on record. Reflecting the trend for input costs, of the 12 monitored UK areas, only Northern Ireland saw a steeper rise in output prices. Welsh firms stated that higher charges stemmed from the pass-through of supplier price hikes to clients, where possible.

Gemma Casey, NatWest ecosystem manager for Wales, said: “Welsh firms topped the UK table once again in September, registering the fastest expansions in business activity and new orders of the 12 monitored areas. That said, Welsh companies recorded the slowest rise in output for six months, as the recovery in client demand following the easing of lockdown restrictions lost some steam.

"Pressure on capacity intensified despite the second-fastest rise in employment on record. Raw material and labour shortages exacerbated the strain on workforces as backlogs rose markedly.

"Severe shortages also drove input costs up at a near record pace. Nevertheless, favourable demand conditions allowed firms to partially pass on higher costs to clients through the sharpest rise in charges in more than 20 years of data collection."