Welsh firms grow as job losses rise

The Welsh private sector saw continued growth in output midway through the third quarter, according to the NatWest Cymru Growth Tracker. The headline Wales Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the area’s manufacturing and service sectors – posted 50.4 in August, down fractionally from 50.5 in July, indicating a slight upturn in output levels in the private sector.

The increase in activity was the second in as many months. However, demand conditions remained fragile as new orders contracted further, leading firms to cut workforce numbers again.

Business confidence slipped to the lowest since October 2025. Jessica Shipman, Chair of the 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.

Growth and Job Losses

Output levels increased for the second successive month at Welsh firms. The rate of growth in activity was softer than the UK average, however. Welsh businesses recorded another monthly decline in new sales midway through the third quarter, extending the current sequence of contraction to seven months.

The decrease was modest overall and contrasted with the UK trend, which indicated a slight upturn in new business. Meanwhile, output expectations for the year ahead at Welsh firms weakened during August.

Although still anticipating growth in activity, the degree of confidence ticked down to the least marked since October 2025. The level of optimism was the second-lowest of the 12 monitored UK areas, ahead of only Northern Ireland.

Employment and Capacity

Welsh companies recorded a further drop in headcounts midway through the third quarter, extending the current period of job losses, which began in September 2024. The rate of decline in employment gained pace and was strong overall.

The pace of reduction in workforce numbers was the fastest of the 12 monitored UK areas. Welsh businesses signalled little pressure on capacity in August, as backlogs of work contracted further and at a slightly sharper pace.

In line with the trend for employment, the pace of depletion in work-in-hand was the steepest of the 12 monitored UK areas. Cost burdens at Welsh firms increased again midway through the third quarter, with the rate of inflation picking up slightly from July’s five-month low.

Costs and Prices

Although stronger than the series’ long-run average, the pace of increase was softer than the UK trend and below the highs seen between March and June 2026. In line with the trend for input costs, output charges at Welsh firms rose at a fractionally faster pace than in July.

The rate of charge inflation was above the series trend, but matched the UK average. Jessica Shipman noted that companies continued to prioritise cost-cutting efforts amid a slight hike in cost inflation, and that employment fell at a sharper rate as uncertainty in the outlook dampened hiring intentions further.

However, 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.

Compared to similar situations in the past, the current combination of growth and job losses in the Welsh private sector is not unprecedented, and firms may be adapting to the changing economic conditions by cutting costs and adjusting their pricing strategies.

The future outlook for Welsh businesses remains uncertain, with output expectations weakening and employment declining. Nevertheless, the ability of firms to work through their backlogs and maintain output levels suggests some resilience in the sector.