South West business activity expands at quickest pace for six months

Growth | Reports | South West
RBS Trinity Quay

The latest NatWest PMI data indicated that growth momentum across the South West private sector picked up at the end of the third quarter. Business activity and new orders both expanded at the steepest rates for six months amid reports of firmer client demand.

As a result, firms expressed a stronger level of optimism towards the 12-month outlook for output, and raised staffing levels at a solid pace. At the same time, inflationary pressures in the regional economy intensified, with input costs rising to the greatest extent for a year-and-a-half in September.

The headline South West Business Activity Index – a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – registered 53.9 in September, up from 52.2 in August. This represented a solid increase in business activity across the region that was the quickest since March. Notably, the latest expansion was only slightly weaker than that seen across the UK as a whole.

By sector, September saw increases in both manufacturing production and services business activity, with the former growing at the comparatively sharper rate.

Latest data indicated demand rose further for the region’s goods and services, with total new business expanding solidly at the end of the third quarter. In line with the trend for activity, the rate of growth was the quickest seen since March. Furthermore, the latest upturn in sales was slightly stronger than that seen at the national level.

Firmer demand conditions and rising activity levels led South West private sector firms to expand their payrolls again in September. The rate of job creation was solid and the quickest recorded for one year.

Nonetheless, capacity pressures persisted across the South West private sector, as shown by a further increase in backlogs of work. Though moderate, the rate of accumulation was the steepest since March.

Private sector firms operating in the South West signalled a sharp and accelerated increase in average input costs in September. The rate of cost inflation jumped from the previous month to the highest since March 2017, driven by increased fuel prices. Consequently, firms raised their charges again and at a solid rate.

South West private sector firms generally anticipate output to increase over the next year. The overall degree of positive sentiment improved to a three-month high, but remained weaker than that seen across the UK as a whole. Confidence was often linked to new product developments and greater company investments.

Chris Preston, Chair, NatWest South West Regional Board, commented: “South West private sector companies ended the third quarter on a solid growth footing, according to the latest NatWest PMI data.

“Business activity and new orders both expanded at the quickest rates for six months, leading to the strongest increase in staffing levels for one year. The rate of job creation at South West businesses continued to outstrip the UK-wide trend.  Improved growth momentum also underpinned a greater degree of optimism towards the 12-month outlook for activity, with business confidence the highest since June.

“However, inflationary pressures continued to build across the region, with input costs rising at the fastest pace for 18 months, which led to a solid increase in output prices as firms sought to alleviate the squeeze on their margins.”

Nick Stamenkovic, NatWest Economist, said: “The South West ended Q3 on a positive note thanks largely to higher new orders, prompting a healthy pick-up in jobs growth. Optimism about the outlook saw a significant improvement.”

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