Business activity in Wales has fallen for the first time in more than 18 months, according to the latest PMI data from NatWest.

The Wales business activity index, which measures the month-on-month change in the combined output of the manufacturing and service sectors, registered 48.1 in August.

The drop, due to weak client demand and a decline in new orders, from 51.6 in July marks the first decrease since February 2021.

New orders received by Welsh private sector firms declined for the first time in a year-and-a-half in August.

At the sub-sector level, manufacturers and service providers registered decreases in new business.

Welsh private sector firms recorded less upbeat output expectations regarding the year ahead outlook midway through the third quarter.

Although sentiment remained optimistic overall, the degree of confidence slipped to the lowest since the introduction of lockdown measures in March 2020.

Despite hopes of supply chain stability, positive sentiment was weighed down by concerns of subdued client demand and surging costs.

August data signalled a further upturn in workforce numbers across the Welsh private sector.

The rise in employment was attributed to efforts to expand capacity, with the rate of job creation broadly in line with the UK average.

That said, the pace of job creation slowed to the joint-softest in 2022 to date, as some firms reported the non-replacement of voluntary leavers.

Private sector firms in Wales recorded a fourth successive monthly reduction in the level of outstanding business during August.

The fall in backlogs of work was strong overall and the sharpest since November 2020.

The decrease was steeper than the UK average, with firms attributing the decline to lower new order inflows which allowed them to work through incomplete business.

Private sector firms in Wales registered another marked monthly increase in input prices during August.

Higher operating expenses were often attributed to hikes in energy, fuel, wage and material costs.

The rate of cost inflation seen at Welsh firms was among the steepest of the 12 monitored UK areas, slower than only Northern Ireland and the south-east of England.

NatWest Wales regional board member Kevin Morgan said: “Welsh private sector firms signalled a further loss of growth momentum in August, as output and new orders returned to contraction territory for the first time in a year-and-a-half.

“Weak demand conditions stemming from surging inflation and strain on customers' disposable incomes led to a solid fall in new business.

“In response, output expectations slumped and firms looked to cut costs as employment grew at the joint-slowest pace this year.

"Prices remained historically elevated as energy, fuel and wage costs spurred on inflation.

“Welsh firms saw some of the sharpest hikes in costs and selling prices across the UK, despite rates of inflation easing again."