NatWest PMI reveals fastest rise in new business for nearly two years across South West

By Nick Batten on 16 May, 2024

Strengthening demand conditions and improved client confidence has spurred new business growth across the South West, according to the NatWest PMI®.

As a result, there was a further uptick in output during April, with firms signalling upbeat forecasts for the medium-term. Cost pressures picked up to a 14-month high, in large part due to changes in the national living wage, but competitive pressures curbed charge inflation.

At 51.3 in April (March 51.2), the headline NatWest South West PMI® 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 – was inside expansion territory for the second month in a row. Increased new order intakes, demand resilience and more favourable economic conditions underpinned the latest rise in output, anecdotal evidence showed.

Private sector sales in the South West continued to increase in April, thereby stretching the current sequence of expansion to five months. Moreover, the upturn was marked and the quickest since May 2022. Monitored companies linked growth to better economic conditions and improved client confidence, besides demand strength and successful marketing efforts. The local rise in sales was the third-best of the 12 monitored UK regions and nations.

Not only did operating expenses at South West companies rise further in April, but also at the sharpest rate since February 2023. According to panellists, materials and labour added to cost pressures. Changes to the national minimum wage, alongside rises in pay for more senior staff to maintain salary differentials, were widely reported as a source of inflation. The South West topped the rankings for cost inflation among the 12 monitored UK regions and nations, followed by London.

Despite the upturn in cost pressures, there was a softer increase in prices charged for South West goods and services in April. The rate of inflation remained historically elevated but dipped to the weakest since February 2021. Some firms indicated that part of their additional cost burdens had been passed on to customers, while others refrained from adjusting their fees due to competitive pressures and client resistance to accept higher selling prices. Prices charged in the South West rose at a softer rate than across the UK as a whole.

April data indicated back-to-back contractions in employment across the South West private sector. That said, unchanged since March, the pace of reduction was only slight. Where job shedding was reported, survey participants indicated cost-cutting measures, layoffs and the non-replacement of retirees. The fall in the local workforce compared with fractional growth at the UK level.

As has been the case on a monthly basis since March 2023, South West firms recorded a decline in outstanding business volumes at the start of the second quarter. Having eased since March, however, the pace of depletion was modest and the second-weakest over this period. Some panellists cited a greater focus on clearing backlogs, while others suggested that new order growth added some pressure on capacity.

Despite slipping to a four-month low in April, the Future Activity Index was well above the neutral mark of 50.0 and its long-run average. Hence, the latest reading was indicative of robust optimism surrounding the year-ahead outlook for business activity. Confidence was underpinned by new client wins, more positive economic conditions, advertising and upbeat forecasts for demand. The overall level of positive sentiment among local firms was slightly below the UK average, however.

Paul Edwards, Chair of the NatWest South West Regional Board, said, “The latest PMI numbers for the South West look very positive, as private sector companies reported a marked rise in inflows of new business thanks to an improvement in economic conditions and client confidence. On the whole, local firms remained strongly optimistic about the outlook, though cost considerations continued to lead to job shedding. Survey data also indicated the continuation of robust cost pressures in April. Anecdotal evidence showed upward pressure on salaries and wages as the main factor driving up business costs, but competitive pressures restricted charge inflation.” 

View the full report here.

Pictured above: Credit: Pixabay