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Business activity still in severe decline across UK, but impact of easing lockdowns evident

The coronavirus disease 2019 (COVID-19) crisis continued to weigh heavily on business activity across all parts of the UK in May, latest NatWest Regional PMI® data showed. Following record contractions across the board in April, rates of decline eased, though markedly more so in some areas than others.

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 below 50 signals contraction, and the further below the 50 level the faster the decline signalled.

Northern Ireland's* Business Activity Index remained the lowest at 18.9 in May. Next was Scotland with a reading of 21.1, its index having shown the smallest rebound since April. The West Midlands (27.9) recorded the steepest contraction of the English regions, followed by the South West (28.1) and then Yorkshire & Humber and the North East (both 28.9), with all four below the UK average.

The highest reading in May was 33.4 for the East of England. Even this, however, was the region's second-lowest since records began in 1997. The biggest index point increase was in the East Midlands, up more than 19 points to 32.6.


Business closures, reduced sales operations and general weakness in demand were some of the factors that contributed to a further broad-based decrease in new business in May. Although rates of decline eased in all areas following record contractors in April, they remained marked by historical standards. The sharpest decreases by some margin were in Northern Ireland and Scotland.


Having recorded the steepest falls in new business, Northern Ireland and Scotland unsurprisingly saw the most marked declines in backlogs of work during May. Rates of depletion remained sharp in all areas in fact, despite a general slowdown compared to April. The region seemingly operating closest to (albeit still well below) capacity was the North West.

Like output, employment fell sharply again across all regions in May. On the jobs front, however, Scotland and Northern Ireland saw the second- and third-slowest falls respectively, behind the North West. Yorkshire & Humber and the West Midlands fared worst overall, with the North East and Wales also seeing particularly steep declines in workforce numbers during May.


Northern Ireland and Wales were the only two areas to record a rise in firms' input costs in May. Declines across the remaining regions were of varying degrees, ranging from sharp reductions in both the North East and South West, to only modest decreases in the East of England, Yorkshire & Humber and West Midlands. Lower payroll costs were a common theme.

For the second month in a row, all 12 regions saw a decrease in output prices. That said, rates of decline slowed in the majority of cases, with charges barely falling in both the North West and Yorkshire & Humber. At the other end of the scale, however, the North East, London and Scotland each saw further widespread discounting.


Firms in almost all UK areas reported optimism towards the outlook for activity over the coming year. The only exception was Northern Ireland, where expectations improved little from April’s record low. The strongest confidence was in Yorkshire & Humber, followed by the South West and North East (the same three also saw the biggest improvements since April).

* Coverage in Northern Ireland includes construction and retail.

Sebastian Burnside, NatWest Chief Economist
, commented:

“Business activity remained severely inhibited across the UK in May. But what we're seeing from the regional PMIs are perhaps the first signs of the impact of looser lockdown restrictions on regional economic performance.

“Rates of decline have started to ease in all areas, but the most notable slowdowns since April have all been in the regions of England. At the other end of the scale, Scotland and Northern Ireland have not only recorded the deepest slumps in activity, but have also seen the littlest improvement in their respective rates of decline.

"However, encouragingly for both Scotland and Northern Ireland, so far the data indicate less severe impacts on their respective labour markets in terms of outright job losses. How businesses eventually transition away from the government's job retention scheme is going to be key, but smaller declines in employment now can only boosts the chances of a quicker recovery when demand starts to pick up.

"Firms are likely to be more inclined to retain staff if they can begin to see some light at the end of the tunnel, so it's encouraging to see that business confidence has improved in most areas."

Download the May NatWest UK Regional PMI® here [PDF 1.7MB]


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