Regional business activity levels show some divergence in February, but expectations generally improve.
09 Mar 2021
Business activity fluctuated in February from region to region the NatWest Regional PMI® report has revealed.
While some parts of the UK saw business activity start to pick up in February following the reintroduction of lockdown measures at the start of the year, there were others that continued to struggle amid the ongoing coronavirus disease 2019 (COVID-19) restrictions, latest Regional PMI® data from NatWest showed.
One common theme across all regions and nations of the UK in February was growing pressure on firms’ margins from rising costs. Nevertheless, business confidence strengthened in the majority of areas.
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.
Of the 12 UK regions monitored by the survey, just four recorded a rise in business activity in February: London, Yorkshire & Humber, the West Midlands and North West. Downturns did, however, slow in all other areas, with the North East close to stabilisation and the East of England and South East seeing only modest declines. Northern Ireland* recorded the sharpest drop in output, followed by Wales, Scotland and the South West, respectively.
After a broad-based decline in new business at the start of the year, most regions of the UK saw a further fall in February. That said, new orders generally decreased more slowly, dropping only marginally in the East of England, West Midlands, North East, North West and South East. Better still, firms in London and Yorkshire & Humber even saw partial recoveries in inflows of new work.
Three out of the 12 monitored regions recorded higher employment in February, the most for a year. The strongest rate of job creation was in Yorkshire & Humber, with the East of England and East Midlands also recording increases. As was the case for business activity, the steepest decline in payroll numbers was in Northern Ireland. It was also the only area where the pace of job losses quickened since January.
Firms in most areas recorded a decrease in backlogs of work in February, reflecting a general underutilisation of capacity due to subdued inflows of new business. Businesses in the North East recorded the steepest decline, followed closely by those in London and Northern Ireland. The only exception was the East of England, where outstanding business increased for the second time in three months.
Average prices charged for goods and services rose across nearly all UK regions and nations in February, and at faster rates in most cases. Northern Ireland continued to see by far the quickest rate of inflation, posting a record-high in February. Output prices in London continued to diverge from all other areas, falling for the twelfth month in a row, albeit at the slowest rate in this sequence.
Businesses' input costs rose more quickly across all parts of the UK in February. As was the case in January, the fastest rate of cost inflation was in Northern Ireland, where it was the highest for just over 12-and-a-half years, with the North East remaining second in the rankings. Firms in London saw the slowest overall rise in operating expenses, though even here the rate of increase was robust.
Firms in most regions were more optimistic about the year-ahead outlook for activity in February. This included Yorkshire & Humber, which saw the highest expectations on record. The South West saw the greatest improvement since January and was ranked third overall behind Yorkshire & Humber and the South East. Northern Ireland saw the weakest sentiment by some margin. That was despite the outlook being the brightest for 12 months.
Sebastian Burnside, NatWest Chief Economist, commented: “Despite lockdown measures remaining in place in February, some parts of the UK started to see business activity pick up since January, and there were also some positive signs for employment and business confidence as more firms were optimistic about the outlook.
"However, many areas are continuing to struggle amidst ongoing restrictions on travel and temporary business closures, and it's no coincidence to see that the regional economies most under pressure are some of those with the largest tourism and customer-facing sectors.
"London outperformed in February, as did Yorkshire & Humber where record levels of business optimism were reflected in a renewed upturn in employment. However, labour market trends generally remain subdued, so the extension of the furlough scheme to September is a welcome step forward in protecting jobs until the economy is fully up and running.
“One advantage that the services-dominated London economy has had is less exposure to the rising cost pressures we're currently seeing from raw materials shortages and transport-related expenses, which have been hitting manufacturing businesses hardest. While prices for goods and services have been rising across every other region, thereby constraining demand, in London the opposite is true as firms continue to use discounting to support new business.
"The variations in regional economic specialisations and the different roadmaps out of lockdown across the four nations of the UK mean we are likely to see varying speeds of recovery over the coming months.”
*Northern Ireland coverage includes construction and retail. For all other areas, coverage is confined to manufacturing and services.