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London tops regional rankings with modest output growth as most areas suffer contractions

Latest NatWest Regional PMI® data revealed challenging business conditions across the UK at the start of the fourth quarter, with output and employment falling in most areas in October.

Just three regions recorded increases in output, the second-lowest number since April 2009 (July 2012 saw only two regions record growth amid a brief downturn following the EU referendum). London was the best performer, though its Business Activity Index figure of 51.7 indicated only modest growth. The West Midlands (50.6) and East of England (50.2) saw only negligible increases in activity, though in the case of the former this was at least an improvement on the declines in output in each of the past four months.

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 growth signalled.

Barring the East Midlands (49.9), which saw virtually no change in output in October, the remaining UK areas all recorded lower activity in October. These ranged from modest declines in Scotland (49.6), the South East (49.5), Wales (49.3), Yorkshire & Humber (49.1), and the North West (49.0), to more solid decreases in the South West (48.2), North East (46.0) and Northern Ireland (44.9).


Demand remained subdued in most areas in October. The only perceptible rise in new orders – albeit marginal – was in the East Midlands. London saw broadly no change, while in all remaining areas inflows of new work fell. By far the steepest decrease was in Northern Ireland, where the rate of decline remained among the worst since 2012. The North East, East of England, North West and Wales all saw similarly moderate falls.


London saw a renewed (albeit marginal) increase in backlogs of work in October, which meant for the fourth time in the past six months it was the only region to record a rise. The steepest decline in outstanding business was again in the North East, as has been the case since August. The slowest rate of depletion was in the South East, though even here the rate of depletion was still solid overall. 

The South West and London saw only modest increases in employment in October, but that was nevertheless enough to place the two regions at the top of the rankings as workforce numbers fell across all remaining areas. The North East recorded the most marked decrease in workforce numbers, its joint-steepest in over ten years, followed by Wales and the East Midlands respectively.


All areas of the UK except Scotland recorded slower rates of input price inflation in October. Northern Ireland remained at the top of the rankings, but saw one of its slowest rises in costs in over three years. Next was London, followed by Scotland. At the other end of the spectrum, the West Midlands remained at the foot of the table having recorded its weakest increase in input prices since June 2016.

The South East and Scotland jumped six and seven places respectively in October to move into the top two positions in the rankings for output price inflation. Notable decelerations were meanwhile seen in the South West, Wales, East Midlands, Yorkshire & Humber and Northern Ireland. The only decrease in selling prices was in the North East, though the rate of decline here eased since September.


Most regions saw an improvement in business confidence towards future output in October. This included the South West, which topped the rankings ahead of Yorkshire & Humber. The three exceptions to the general upswing were the East Midlands, Wales and Scotland. Northern Ireland remained the only area with negative expectations, though the degree of pessimism here eased substantially from September's record low.

Sebastian Burnside, NatWest Chief Economist, commented:

“The positive takeaways from October’s PMI results are few and far between, with businesses in most regions scaling back employment and reporting lower output of goods and services. Though in only a handful of areas – namely Northern Ireland, the North East and, perhaps, the South West – does there appear to be a real recession risk.

“London currently tops the pile, continuing its relative economic outperformance over the second half of this year, while the Northern Irish economy remains the one most under pressure.

“There is some cause for optimism in the news that firms’ cost pressures have become less intense and business confidence has perked up, which could help stem the recent job losses as we head towards year-end.”

Download the October NatWest UK Regional PMI® report here [PDF 1MB]


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