Private sector firms in Wales recorded a further rise in business activity at the start of the third quarter, according to the NatWest PMI, continuing a trend that has been observed since August 2016.

Moreover, the rate of growth picked up from June.

The acceleration was driven by a sharper rise in new business and a return to growth in employment, with the former contributing to an improvement in business confidence. Inflationary pressures eased, but remained elevated nonetheless.

The headline Wales Business Activity Index – a seasonally adjusted index that measures the combined output of the manufacturing and service sectors – posted 55.6 in July, up from 52.0 in June.

This figure signalled the most marked expansion in output in five months, and one that was sharper than the long-run series average. The increase was broad-based across the manufacturing and service sectors, led by the former.

In comparison to other UK regions, Wales was second-best performing area on this metric, behind Northern Ireland.

The amount of new orders placed with private sector companies in Wales rose in July, thereby extending the current period of expansion to two years.

Having eased to the weakest in this sequence during June, the rate of expansion accelerated in July, and was faster than the long-run series average.

Growth was recorded by both manufacturers and service providers, led by the former.

Compared to other UK regions, Welsh private sector companies performed the third best in July on this front, behind Northern Ireland and Scotland.

Boosted by a sharper rise in client demand, Welsh private sector firms raised their staffing numbers in July, following a decline at the end of the second quarter. The rate of the increase, however, was only marginal and weaker than seen across the UK as a whole.

Enhanced operating capacities contributed to an eighth consecutive fall in the overall level of business outstanding in July. That said, the rate of backlog depletion eased to the weakest in this sequence and was slight overall.

Input cost inflation softened to an eight-month low in July. That said, the rate of increase remained elevated amid reports of higher aluminium and fuel costs. Service providers continued to record a sharper rise in cost burdens than their manufacturing counterparts.

Responding to greater cost burdens, firms raised their average selling prices in July.

Finally, firms maintained a firmly optimistic growth outlook during July. Moreover, the degree of positive sentiment improved from June.

Kevin Morgan, NatWest Cymru Board, gives his views to the South Wales Argus Business on the bank’s latest PMI report for Wales.

"Business is upbeat according to the latest Welsh PMI survey. Business activity improved in early Q3, driven by rising orders. Employment prospects also picked up. Still, more needs to be done to promote Wales’ growth relative to the UK economy and boost living standards.

"Since the early 1990s the unemployment rate in Wales (currently 4.9 per cent) has been close to the UK average (currently 4.3 per cent).

"Notably, employment as a percentage of the total workforce - the so-called labour participation rate – has consistently been below the UK. Indeed, regional disparities are clearly evident with East Wales faring better than West Wales.

"Welsh business should close the gap with the UK in generating new innovative businesses and boosting R&D spending.

"In 2015 the latter accounted for 0.45 per cent of GDP, the second lowest in the UK. On a regional basis, R&D has been concentrated in the South East and Deeside in Flintshire.

"Flintshire has consistently been at the top of the national league table for growth over the last decade.

"In addition, the unemployment rate has steadily declined, falling from a peak of 11.2 per cent in November 2011 to around only three per cent in March 2018, well below the national average.

"The manufacturing sector is the heartbeat of the local economy, benefiting from a thriving aerospace industry, a strong export base. The IT and financial sector is also growing rapidly.

"South east Wales average earnings, led by Cardiff, have outpaced Wales recently, but the current unemployment rate, at 6.8 per cent, exceeds the national average (4.9 per cent), suggesting the dividends are not evenly spread. With employment biased towards the public sector (around 25 per cent) rather than the hi-tech driven financial hub (around five per cent), this region has been slow to benefit from increased innovation.

"The recent success of Flintshire provides a blueprint for Wales to overcome its lack of larger export-orientated firms, stifling productivity.

"Boosting innovation and encouraging R&D would help to diffuse technology, narrowing regional growth and labour market differentials in the country.

"Brexit and its associated uncertainty pose a challenge to inward investment but this provides an ideal opportunity for exporters to diversify towards other overseas markets."