South West private sector output expands at quicker pace in February

Reports | South West

South West private sector firms signalled slightly faster increases in activity and new work during February, according to the latest NatWest PMI® data, but growth across the region remained relatively modest overall.

The subdued increase in new orders contributed to the first fall in employment for nine months (albeit marginal). The drop in workforce numbers coincided with sustained signs of spare capacity, with backlogs of work falling again in February. Prices data meanwhile showed a further steep rise in input costs, which prompted firms to raise their charges again and at a solid pace.

The headline South West Business Activity Index – a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – posted 52.1 in February, up from 50.4 in January.

The reading indicated that business activity rose at the quickest rate for five months, with the region slightly outperforming the UK-wide trend. That said, growth was moderate overall, and softer than seen this time last year.

Data broken down by sector indicated improved performances for both the manufacturing and service sectors in the South West during the latest survey period.

Private sector companies based in the South West signalled a further rise in new orders during February. The rate of expansion remained marginal, however, despite quickening since January. Nonetheless, this was better than the UK-wide trend, which pointed to an overall fall in new business.

As growth in new orders remained relatively muted, companies were able to work through their outstanding business again in February. That said, the rate of depletion was only slight.

At the same time, signs of spare capacity and efforts to cut costs underpinned the first fall in employment for nine months, albeit marginal. Workforce numbers also declined across the UK as a whole in February.

South West private sector firms continued to register a steep increase in average input costs during February. The rate of inflation picked up to a four-month high, with a number of panellists blaming the rise on supplier price hikes.

As part of efforts to protect margins, firms raised their selling prices again in February, and at the strongest rate since last November.

Confidence towards the year ahead slipped from January, and remained softer than the long-run trend. Brexit-related uncertainty was  reported as a key factor weighing on overall sentiment.

Chris Preston, Chair, NatWest South West Regional Board, commented: “PMI data for the South West showed that businesses saw a slight pick-up in growth momentum during February, with output and new orders rising at slightly stronger rates. That said, the expansions were relatively mild overall, and weaker than those seen this time last year. The slight upturn in new work was, however, better than the fall recorded at the national level.

“One key area of concern is signs of a weakening labour market. After declining at the UK level for the second month in a row, workforce numbers at South West firms fell for the first time in nine months in February. A combination of subdued client demand and efforts to cut costs (which panellists indicate are still rising sharply) is likely to weigh on headcounts in the months ahead unless there is a stronger improvement in new business.”

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