WALES’ manufacturing industry has been credited with driving above average levels of growth compared to the rest of the UK last month.

It means Wales enjoyed a healthier level of business expansion in July than London and the south-east of England, which have been affected by a slowdown in the service sector.

The findings come in the latest Purchasing Managers’ Index (PMI) from Markit Economics, which shows that the Welsh private sector economy entered the second half of the year with higher output underpinned by a further expansion of new business and a slight rise in employment.

However, continued spare capacity at Welsh firms resulted in a further reduction in backlogs of work.

The latest data also point to an easing of price pressures, as both input costs and output charges rose more slowly.

At 54.8 in July, down marginally from 54.9 in June, the headline seasonally adjusted Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – signalled that the pace of expansion was fractionally lower than in June and the least marked in four months.

The manufacturing sector remained the driver of overall expansion.

Tim Moore, economist at Markit Wales, said the figures were the reverse of the trend seen earlier in the year when Wales was behind the UK average.

“It seems to be the manufacturing sector that has held up. There’s been a slowdown in services but not in manufacturing,” he said.

“The rest of the UK has seen more of a slowdown. London and the south-east PMI has come down much further, probably due to the sectoral make-up of the regional economy.”

Mr Moore added: “Wales has followed the UK trend over the past year with a sharp drop in 2009 and recovery under way at the beginning of this year.

“Overall in Wales growth has slowed over the last four months.”

The trend in output mirrored that for new business. Welsh companies indicated a stronger rise in new work than that recorded across the UK overall, but it was nevertheless the weakest in four months.

The survey’s panellists commented that growth of new orders reflected stronger market demand and higher activity levels at clients.

Employment in the Welsh private sector economy increased again in July, extending the current period of expansion to four months. However, the rate of growth remained only slight.

Staffing levels at manufacturers continued to rise, but service providers noted a further decline in payroll numbers.

Welsh firms reported another decline in outstanding business during July, which they generally attributed to spare capacity.

The rate of backlog depletion was sharp, despite easing since the previous month.

Input cost inflation in the Welsh private sector remained strong in July, albeit the slowest in four months.

Panellists commented that rising raw material prices were the main factor driving costs higher. Input price inflation remained steeper in manufacturing than in services.

Output charges increased at a solid rate, although the latest rise was the slowest in three months.

Higher tariffs were generally attributed by survey respondents to the pass-through of higher costs to clients.

The headline UK average was brought down by the continued contraction in business activity in Northern Ireland, which is exposed to the poor economic conditions in the Republic of Ireland.

Mr Moore said: “The real slowdown in the last month was in London and the south-east where we do seem to have seen growth come down sharply.”

The prospect of severe public spending cuts has contributed to business confidence ebbing away, he added.

This fall in confidence is not just confined to the UK, but is also present in the US and the Eurozone, Mr Moore said.

“The good thing is we’re still seeing growth at moment,” he added.

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