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Economic analysis

NatWest UK Regional PMI®- September

Business activity falls across most regions and nations in September.

There were only a few remaining pockets of growth across the UK in September, according to latest Regional PMI® data from NatWest. Demand for goods and services fell in most areas, under pressure from high inflation and increased uncertainty towards the outlook. This in turn took a toll on hiring activity, with employment growth slowing in the majority of cases. 

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 fell in all but three of the 12 monitored UK regions and nations in September. The fastest rates of contraction were seen in Northern Ireland* (Business Activity Index at 42.3) and the South West (43.5). London (52.0) was the best-performing region, despite seeing growth slow to a 20-month low, ahead of Yorkshire & Humber (51.4). Business activity in the South East (50.0) was unchanged on the month, after having fallen slightly in August.

Demand

Ten of the 12 monitored regions reported lower inflows of new work in September, the most since January 2021, in a sign of growing weakness in demand for goods and services. The steepest decline was recorded in Northern Ireland. London and Yorkshire & Humber saw the only increases in new business, though even here rates of growth eased and were only marginal.  

Prices

Cost pressures remained elevated across the UK in September. Rates of input price inflation accelerated in half of cases, led by a notable uptick in Wales. Northern Ireland and London, ranked second and third respectively, were also among those that saw faster rises. The South West recorded the slowest increase in operating expenses, albeit one that was still well in excess of its historical series trend. 

All regions and nations of the UK recorded steep increases average prices charged for goods and services at the end of the third quarter, amid the widespread pass-through of higher costs. Wales saw the steepest rise, and also one that was slightly quicker than in August, followed by the South East. The weakest increase in output prices was recorded in Scotland for the second month in a row.

Capacity

Although employment rose in most regions in September, rates of job creation slowed in the majority of cases. This included the East of England, which nevertheless topped the rankings ahead of the South East. Workforce numbers fell in the North East for the fourth month running, whilst the South West recorded its first decline since February 2021.

Of the 12 monitored regions, just London and the East Midlands reported an increase in backlogs of work in September. In the latter's case, the rise was only modest. Elsewhere, business capacity pressures eased. The steepest decline in outstanding business was recorded in Northern Ireland, which replaced the North East at the bottom of the rankings.  

Outlook

Business confidence towards future output fell across three-quarters of the surveyed regions in September. Yorkshire & Humber recorded the strongest optimism, despite seeing the greatest reduction in expectations from the previous month. Business sentiment was generally positive, with the exception of Northern Ireland and the North East.

PMI survey coverage in Northern Ireland includes construction and retail, as well as manufacturing and services.

 

Sebastian Burnside, NatWest Chief Economist, commented:

“The majority of UK regions saw business activity levels fall in September, amid an increasingly challenging economic backdrop.

"The combination of a loss of purchasing power due to high inflation, rising interest rates and concerns about the economic outlook have weighed on demand for goods and services across the board.

"London and Yorkshire & Humber were the only regions still in growth territory in September, recording increases in both output and new business, though they too have shown a considerable loss of momentum compared to earlier in the year, whilst also seeing the largest month-on-month drops in business expectations.

"Optimism towards growth prospects fell in most regions in September and was, in all cases, low by normal standards. With conditions becoming more challenging and businesses less confident of growth in the year ahead, we've seen a broad-based slowdown in recruitment activity compared to earlier in the year." 

 

Read full report: NatWest UK Regional PMI®- September (PDF 249KB)

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