• Swindon & Wiltshire Economy
• Monday February 12 2024
• Author Name: Peter Davison

January sees strongest rise in South West business activity for nine months – Natwest

January saw the strongest rise in South West business activity for nine months, according to the latest NatWest South West PMI Business Activity Index.

The index, which measures the month-on-month change in the combined output of the region’s manufacturing and service sectors, picked up from 51.3 in December to 52.0 at the start of 2024, to signal a back-to-back expansion of business activity across the region.

Though modest, the rate of growth was the best recorded since last April, with firms often linking the upturn to improved demand conditions and higher sales.

Expectations that economic conditions will strengthen further buoyed confidence regarding the year ahead, with sentiment hitting the highest in two years. At the same time, there were signs that inflationary pressures continued to ease, but rates of both input cost and output charge inflation remained elevated by historical standards.

Companies in the South West registered a back-to-back increase in new business at the start of 2024. Though modest, the rate of expansion was the most pronounced since last May. Reports from panel members indicated that improved marketing and new client wins had supported the latest upturn in sales. New orders also expanded across the UK as a whole for the second month in a row, and at a slightly quicker pace than in the South West.

Optimism towards the 12-month outlook for output strengthened across the South West at the beginning of the year. Notably, the level of positive sentiment hit the highest in two years.

Expectations were also firmer than that seen on average across the UK as a whole.

Companies often anticipate that stronger economic conditions, improved sales, and investment in marketing and technology will boost output over the year.

Staffing levels at South West companies were broadly stable in January, as highlighted by the respective seasonally adjusted index posting fractionally below the neutral 50.0 threshold.

This contrasted with a modest decline in payrolls at the end of 2023. While some firms added to their headcounts to support plans for growth, others cited difficulties in filling open roles and also redundancies.

Across the UK as a whole, employment increased for the first time in five months, albeit only slightly.

The level of work-in-hand – but not yet completed – at South West companies declined again in January, thereby stretching the current period of backlog depletion to 11 months.

Despite quickening on the month, the rate of reduction was modest and broadly in line with the national trend. Businesses that recorded lower amounts of unfinished work generally linked this to sufficient capacity to deal with new and existing orders.

Companies based in the South West signalled a further sharp rise in average input costs at the start of the year. According to anecdotal evidence, a variety of costs had gone up over the month due to the strong inflationary environment, with salaries, raw materials and energy mentioned in particular. However, the rate of inflation edged down to the lowest seen in three years and was weaker than the UK-wide average.

The latest survey indicated that prices charged by South West companies continued to increase during January. Firms often mentioned raising their selling prices as part of efforts to pass on higher operating expenses to customers. Whilst solid and above the series average, the rate of charge inflation was the slowest recorded in just under three years. It was also softer than that seen across the UK as a whole.

Paul Edwards, chair of the NatWest South West Regional Board, said: “Business conditions faced by South West companies continued to improve at the start of 2024, with the latest PMI data indicating stronger growth momentum for the second straight month.

“Companies anticipate the recovery to continue in the months ahead, driving overall optimism around the outlook to a two-year high. Signs that inflationary pressures continued to cool at the start of the year will also provide some much-needed relief for businesses.

“However, price indices are still pointing to steep cost pressures overall, and the recent disruption to supply chains in the Red Sea have the potential to push up expenses further in the months ahead.”