Nearly all regions and nations of the UK recorded slower growth in business activity in August, latest Regional PMI® data from NatWest revealed, as the post-lockdown recovery showed a further loss of momentum. Employment levels nevertheless continued to rise across all areas amid broad-based pressure on business capacity.
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 growth eased across the majority of regions for the third month in a row in August. Only Scotland, which recorded an index reading of at 58.1 and topped the rankings narrowly ahead of Wales (58.0), saw a faster rate of expansion than in July. The weakest increases in output were recorded in the North East (51.7), East Midlands and Northern Ireland* (both 52.1).
Demand
Inflows of new business rose across all regions and nations in August, albeit at varying speeds. Wales recorded a sharp rate of growth and topped the rankings for the second month running, ahead of the West Midlands and Scotland respectively. At the other end of the scale, firms in Northern Ireland saw only a marginal increase, and one that was the weakest for five months.
Capacity
Rates of job creation accelerated in eight of the 12 monitored regions in August. This included London, which recorded its steepest rise in workforce numbers on record and led employment growth for the first time since the pandemic began. Firms in the North East recorded the slowest rate of hiring, and one that was unchanged from the previous month.
August saw a further broad-based increase in backlogs of work, highlighting a sustained rise in pressure on business capacity in all regions. Firms in Wales recorded the most marked accumulation of outstanding business for the third month a row, with neighbouring West Midlands also seeing a particularly sharp increase. The slowest rise was in Scotland.
Prices
Latest data showed a sharp rise in input prices across all parts of the UK in August. The West Midlands, North West and Scotland each recorded slightly fastest increases, but all other areas saw rates of cost inflation ease from (but stay close to) July’s record highs. Northern Ireland and London were top and bottom respectively for input price inflation, as has been the case since the start of the year.
Ten of the 12 monitored regions recorded slower increases in output prices in August. Still, rates of inflation generally remained sharp by historical standards, particularly in Northern Ireland. Firms in London and West Midlands bucked the trend and registered slightly faster rates of inflation, with the forming posting the steepest rise for almost 13-and-a-half years.
Outlook
Most areas in August saw an improvement in firms' expectations towards future activity. The strongest increases in confidence were recorded in Wales and the South West respectively. Yorkshire & Humber also saw a notable improvement and regained the top spot in the rankings from the South East, which was second overall. Firms in Northern Ireland once again recorded the lowest optimism.
Sebastian Burnside, NatWest Chief Economist, commented:
“Growth rates across UK regions are starting to settle down after the post-lockdown boom in activity we saw during the spring and early summer.
"However, we're still seeing notable increases in business activity in some areas, including Scotland, which defied the broader slowdown in August to move to the top of the growth rankings.
"Across the UK, business activity is being somewhat constrained by material and staff shortages, which is highlighted by a sustained broad-based rise in backlogs of work. The survey suggested that firms in Wales and the West Midlands had particular difficulty keeping up with demand.
"Rates of job creation generally remained strong and even accelerated in the majority of regions in August, with firms urgently looking to expand staffing capacity. This is adding pressure on company margins however, amid widespread reports of higher wages.
"On a positive note, expectations for activity in the coming year brightened across most parts during August, hinting that there's greater optimism among businesses that the current supply issues and associated prices pressures will eventually ease."
Download the August NatWest Regional PMI® report (PDF 1.8MB)
