London tops growth rankings, while East of England lags behind
Divergent trends in regional employment
Price pressures, although still high, continue to ease
Regional PMI® data from NatWest indicated a positive end to the first quarter for firms across most areas of the UK, supported by a broad-based uptick in demand. Business expectations were optimistic, with the survey showing a continued softening of cost inflation. However, the picture for employment was mixed.
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.
Nearly all areas of the UK recorded a rise in business activity in March, the only exception being the East of England where output was unchanged (index at 50.0). Growth did however ease in the majority of cases, including the top-ranked region, London (55.1). The most notable upswing in momentum was in Northern Ireland* (54.9), where business activity rose at the quickest rate for a year.
* PMI survey coverage in Northern Ireland includes construction and retail, as well as manufacturing and services.
New business rose across all 12 monitored areas in March, albeit at varying rates. The sharpest increase by far was in London, where new business growth was the quickest for a year. The North East placed second in the rankings, marking a turnaround from its underperformance throughout much of 2022. Yorkshire & Humber recorded the slowest rise in new orders, and one that was only marginal.
Input cost inflation eased across the board in March. The North West saw the greatest slowdown, leaving it at the foot of the rankings. That said, rates of cost inflation remained stubbornly high in all cases, registering firmly above their respective historical averages. London saw the steepest rise in operating expenses, as had been the case in February.
High cost pressures faced by businesses once again translated into steep increases in average prices charged for goods and services in March. Firms in the South East recorded the sharpest rise in output prices. Rates of charge inflation generally slowed, however. The one exception was Scotland, although the rate of increase there remained close to February's 22-month low.
March data showed diverging trends in regional employment. Northern Ireland saw a steep and accelerated rise in workforce numbers and was one of only two areas where the pace of job creation quickened, alongside Scotland. At the other end of the scale, the North East and Wales both saw deepening declines in staffing levels. In most other areas, employment was little-changed.
Of the 12 areas monitored, only London and Northern Ireland recorded a rise in outstanding business in March. Furthermore, the increases registered there were marked. Business capacity pressures eased elsewhere, but particularly in Wales, where firms noted a solid and accelerated drop in backlogs, and one that was among the sharpest seen over the past two-and-a-half years.
Business expectations were optimistic across the board in March. Furthermore, confidence improved in just over half of the monitored areas, rising sharpest in the North East (although it remained at the foot of the rankings). Firms in the West Midlands were the most upbeat about the outlook, as was the case in both January and February, followed by those in Yorkshire & Humber.
Sebastian Burnside, NatWest Chief Economist, commented:
"March's PMI data rounded off an encouraging first quarter, with trends in activity and new business having improved compared to the second half of last year across all regions and nations.
"London remains ahead of the pack when it comes to growth, recording the strongest increases in both business activity and inflows of new work in March.
"Price pressures remain elevated across the UK. However, we've seen firms' input costs rise at a slower rate in all areas in March, in the latest sign that headline inflation is likely to start coming down in the months ahead.
"Signs of life in demand, together with easing energy and inflation concerns, has contributed to a marked improvement in business confidence in all regions from the lows seen last autumn.
"It's more of a mixed bag on the jobs front, however. The stability in employment seen at the UK level in March masked divergent regional trends, with workforce numbers falling in just under half of the areas monitored, and markedly in some cases. With only Northern Ireland and London recording increases in backlogs of work during the latest month, the data hint at capacity pressures having eased in most areas of the UK."