The latest NatWest South West PMI® data indicated that growth momentum improved across the region’s private sector at the end of the second quarter. Business activity expanded at a stronger pace, supported by a solid rise in new orders.
As a result, companies added to their payrolls for the first time in three months, while confidence towards the business outlook reached the highest since February. Inflationary pressures remained elevated, however, with input price inflation at its highest rate since January and selling prices increasing at a solid pace.
The headline NatWest South West Business Activity Index – a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – rose from 51.1 in May to 52.5 in June. The reading signalled a modest increase in business activity, with growth having picked up from May’s recent low. That said, the pace of expansion remained weaker than those seen at the start of 2018 and was below the UK average.
June data signalled that demand conditions in the South West improved in June, with new orders rising to the greatest extent for three months. However, growth remained weaker than that seen across the UK as a whole.
Improved client demand contributed to a renewed upturn in staff numbers at South West private sector companies during June. Although the rate of job creation was only slight, it was the first time that payrolls had risen for three months. Employment also rose at the national level, and at a quicker rate than recorded in the South West.
Volumes of outstanding business at South West private sector companies declined for the first time in 2018 so far in June. Some monitored firms mentioned improved productivity and greater efforts to clear work-in-hand (but not yet completed). That said, the rate of backlog depletion was only slight. Meanwhile, unfinished workloads rose across the UK as a whole, following a marginal reduction in May.
South West private sector firms signalled a further sharp rise in average input costs at the end of the second quarter. Notably, the rate of inflation reached a five-month high and was similar to the national trend.
Prices charged by South West private sector firms also increased during June, and at a similarly solid pace to that seen in May.
Reflective of stronger increases in new orders and output, optimism towards the year ahead improved to a four-month high across the South West private sector in June. Optimism was generally linked to new product releases, planned expansions into new markets and greater investments.
Chris Preston, Chair, NatWest South West Regional Board, commented: “The NatWest South West PMI data show that the private sector regained some growth momentum in June, with new orders and business activity both expanding at stronger rates. However, the latest increases remained weaker than those seen at the start of the year, and were also softer than growth rates registered at the national level.
“Nonetheless, it was encouraging to see stronger optimism towards the 12-month outlook alongside a renewed upturn in employment, suggesting that firms are not only anticipating but planning for higher output in the months ahead.
“There was a note of caution signalled by the sustained and sharp rise in cost burdens. Input prices at South West private sector companies continue to increase at a steeper pace than charges, signalling that operating margins remain under pressure.”