UK regions see business activity continue to recover during October
Most UK regions reported an upturn in growth during October, recording faster increases in output, new orders and employment, according to the latest Regional PMI® data from NatWest.
Output levels rose across the board in October, but at varying speeds.
However, the survey showed business cost pressures at an all-time high in almost all areas, amid increases in the price of energy and raw materials as well as higher wages. This often contributed to lower business confidence.
The PMI Business Activity Index is the first fact-based indicator of regional economic health published each month, tracking the monthly change in the output of goods and services across the private sector. A reading above 50 signals growth, and the further above the 50 level the faster the expansion signalled.
Business activity rose across all regions and nations monitored by the survey in October, with rates of growth accelerating in the majority of cases. This included Wales, which topped the rankings for the second month running with an index of 61.5 ahead of London (60.5). The North East (51.2) recorded only a marginal rate of expansion and was once again the weakest-performing area for output growth.
After losing momentum in most regions in September, inflows of new work generally reaccelerated in October. Wales remained out in front for new order growth, though the pace of increase was still below the highs during the early recovery phase in the second quarter. Northern Ireland* saw a fall in new work for the second month running, while inflows broadly stagnated in the North East.
A build-up of backlogs of work across 11 of the 12 monitored regions in October continued to indicate widespread capacity pressures in the economy. Wales recorded the most marked rise in outstanding business (by some margin), followed by the West Midlands and then Yorkshire & Humber. The North East saw the only fall in work-in-hand.
Latest data showed another broad-based rise in employment in October. Rates of job creation were fastest overall in the North West and London respectively, and even reached a series-record high in the case of the former. Most areas in fact recorded faster increases in employment than in September, including the lowest ranked region, the North East.
Latest data showed a universal acceleration in rates of input cost inflation at the regional level in October. Furthermore, they reached record highs in all but one case (the increase in the West Midlands was its third-fastest). Firms in Northern Ireland recorded the strongest overall cost pressures, while those in London faced the least marked (although still notably higher than at any time before).
All regions saw further sharp increases in average prices charged for goods and services in October. Rates of inflation slowed only in the North West and Scotland, but even here they stayed close to their recent peaks. Northern Ireland and Wales recorded the steepest rises in output prices respectively, and were two of seven areas where rates of inflation hit all-time highs.
Businesses all across the UK remained upbeat about the outlook for activity over the coming year. The strongest optimism was recorded in Yorkshire & Humber, where confidence picked up slightly in October. In most areas, however, growth expectations moderated from the previous month, falling sharpest in the North West and Northern Ireland.
* Coverage in Northern Ireland also includes construction and retail, which were the main drags on new business.
Sebastian Burnside, NatWest Chief Economist, commented:
“October’s results can be described as a mixed bag. Signs of a pick-up in activity and employment growth across many areas have been somewhat overshadowed by sky-rocketing costs faced by businesses in all parts.
“One positive is that activity levels continued to recovery across every region and nation at the start of the fourth quarter, albeit with some carrying more momentum than others.
“We can also take encouragement from a sustained broad-based rise in employment, as firms look to rebuild workforces and expand capacity in line with strengthened demand. However, businesses are having difficulty filling vacancies due to a tightening jobs market, which is not only holding back activity in some cases and contributing to rising backlogs of work, but also pushing up wages.
“When factoring in the surging prices of energy, raw materials and transportation, this has resulted in a cost environment unlike anything we’ve seen for at least two decades. Firms in almost every region and nation recorded unprecedented increases in their operating expenses in October.
“These strong inflationary pressures, combined with related supply chain issues, have weighed on business confidence, which has seen a setback in the majority of areas in October. Still, firms generally remain positive about growth prospects in the coming year.”