THE WELSH economy showed signs of recovery in February, with business activity rising for the second consecutive month, according to the latest NatWest Wales Growth Tracker. However, challenges remain, as job losses continue, inflationary pressures persist, and new business orders decline.
Business activity expands, but demand falls
The Wales Business Activity Index, which measures monthly changes in the combined output of the region’s manufacturing and service sectors, increased to 51.5 in February, up from 50.7 in January. This marks the strongest growth in six months. However, despite this expansion, new business orders declined for the fourth month in a row, reflecting weak domestic demand and uncertainty surrounding government policies.
Job losses accelerate
While business output has increased, companies remain cautious about hiring. February saw the sixth consecutive month of job losses, with employment levels declining at a sharper rate than in January. The reductions were attributed to voluntary departures not being replaced, redundancies, and changes in labour policies. Despite this, the pace of job cuts in Wales was slower than in the UK as a whole.
Inflation pressures remain
Inflationary pressures persisted in February, with input costs rising at the fastest rate in ten months. Businesses reported higher labour costs and rising import prices as key drivers. In response, many firms increased their prices for goods and services, leading to the sharpest output price inflation in nearly a year. However, inflation levels remain below post-pandemic peaks and lower than the UK average.
Optimism for the year ahead
Despite the challenges, Welsh firms expressed the highest level of confidence in five months, expecting growth to continue over the next year. Business leaders are optimistic about expansion, citing strategic growth initiatives, productivity improvements, and new customer acquisitions.
While Wales’ economy is showing early signs of recovery, persistent job losses, sluggish demand, and inflation continue to pose risks. The coming months will be crucial in determining whether the region can sustain its growth momentum or if economic uncertainty will drag it down once again.
