Business activity expands at near-record pace in July across the South West
The start of the third quarter saw a steeper expansion in South West private sector business activity, as the further relaxation of COVID-19 restrictions helped to boost demand. At 62.2 in July, the headline NatWest South West Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – rose from 61.6 in June and signalled a sharp and accelerated rise in output. Notably, the increase was among the quickest ever recorded by the survey, and the steepest of all 12 UK regions. Business activity in the South West has now expanded in each of the past five months.
New orders received by South West private sector firms increased for the fifth month running in July. Furthermore, the rate of expansion quickened since June and was among the fastest on record. When explaining the latest upturn in new work, panellists generally commented on increased client demand due to the further easing of lockdown restrictions, and a boost to the region’s tourism sector due to improved demand for domestic holidays. A marked increase in new business was also seen at the national level in July, though growth was not as sharp as that seen in the South West.
Private sector firms in the South West remained strongly optimistic that output would increase over the next year in July. That said, the overall degree of positive sentiment dipped to a six-month low. While some firms anticipated further boosts to client demand as the pandemic situation improved and new products are released, others were concerned the current tourism boom may fizzle out.
South West private sector firms increased their staffing levels for the fifth successive month in July. Moreover, the rate of job creation accelerated to the fastest since data collection began in January 1997. The expansion was also the fastest seen of all 12 UK regions. A number of monitored firms mentioned hiring additional staff in order to meet rising customer demand and as part of efforts to expand capacity.
July survey data signalled a sharp and accelerated rise in the level of outstanding business at South West private sector firms. Notably, the rate of accumulation was the second-steepest since the series began in November 1999 (after May 2021), and outpaced the UK-wide average. Businesses that registered greater amounts of work-in-hand (but not yet completed) commented that this was due to rising new order inflows, limited capacity and material shortages.
Average input prices faced by South West private sector companies rose again in July, with the rate of increase quickening for the sixth month in a row. Furthermore, the rate of inflation was the steepest seen since the series began at the start of 1997. Anecdotal evidence indicated that greater costs for labour, materials and shipping had driven up expenses in the latest survey period. Across the 12 UK regions, only Northern Ireland posted a steeper increase in input costs during July.
The surge in costs led private sector firms in the South West to raise their output charges again in July. Selling prices have now increased in each of the past seven months. In line with the trend for input prices, the rate of inflation was the sharpest on record, as firms sought to alleviate pressure on margins. Average output charges also rose markedly at the national level in July, though the rate of increase was not quite as strong as that seen in the South West.
Paul Edwards, Chair, NatWest South West Regional Board, commented: “Latest PMI data showed that business activity expanded at a near-record pace across the South West in July, as firms’ order books were boosted by a further relaxation of lockdown measures and increased amounts of ‘staycations’ in the region amid ongoing international travel restrictions.
“This in turn led to a record rate of job creation, as South West firms looked to expand capacity in line with strengthening client demand. However, the recovery has been accompanied by greater cost pressures, as higher staffing costs and raw material shortages drove unprecedented upturns in input costs and selling prices. There has also been a slight dip in confidence due to expectations that domestic tourism won’t reach the same heights again next year and other challenges.”