- 11 out 12 monitored areas record growth; North East stabilises
- New orders increase almost universally
- Costs rise more slowly, though still steeply overall
February’s Regional PMI® data from NatWest indicated a better month for businesses across the UK in terms of activity, albeit with those in London enjoying by far the strongest growth. Underlying demand perked up in almost all areas, leading to generally stronger optimism among firms. On the price front, charges for goods and services continued to rise sharply across the board, despite signs of easing cost pressures.
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.
February saw a rise in business activity across all but one of the regions and nations monitored by the survey. The North East was the only exception, although output here did at least stabilise after a seven-month sequence of contraction (index at 50.0). London (56.0) recorded by far the strongest activity growth, registering its best performance since last July, with the South East (53.3) a distant second.
* PMI survey coverage in Northern Ireland includes construction and retail, as well as manufacturing and services.
Latest data showed signs of improved demand across almost all parts of the UK in February. Inflows of new work rose everywhere except in Wales, although even here they at least moved closer to stabilisation. London saw the strongest growth
in new business, followed by the East of England and the West Midlands respectively.
February saw a broad-based cooling of input cost inflation faced by UK businesses, albeit with rates remaining firmly above their long-run averages in all areas. The most marked slowdown was in the North East, while the North West recorded the joint-weakest overall rate of cost inflation together with the East of England. London meanwhile topped the rankings for the first time since July 2019.
All areas of the UK once again registered a sharp rise in average selling prices in February, as businesses often looked to shift some of the burden of higher costs on to customers. The steepest increase was observed in the South East. That said, here and in most other areas, rates of output price inflation eased compared to January. The only exceptions were the North West, London and East of England.
The number of areas recording an increase in employment rose from seven in January to ten in February, with the South West, East of England and Scotland each seeing renewed job creation. Northern Ireland* was at the top of the rankings for workforce growth for a second straight month. Further decreases in employment were meanwhile recorded in both Wales and the North East.
Five of the 12 monitored areas recorded increases in outstanding business in February. By far the most marked rise was in London, where growth hit a five-month high, while only marginal increases were seen in Yorkshire & Humber, East of England, South West and Northern Ireland. At the other end of the scale, firms in Wales recorded the steepest drop in backlogs of work by some margin.
There was an improvement in business confidence in two-thirds of areas in February. The most marked upswings in sentiment were in Northern Ireland and Scotland, although these two remained towards the bottom end of the scale for overall levels of optimism. Expectations were highest in the West Midlands, as was the case in January, and lowest in the North East, which saw confidence wane slightly.
Sebastian Burnside, NatWest Chief Economist, commented:
"After a challenging start to the year when only one region (London) reported growth in activity, February's survey data showed a turnaround in fortunes, with almost every area of the UK back in growth territory. Encouragingly, upturns in activity were generally supported by greater inflows of new work.
"London was the standout performer in February, registering strong increases in both output and new work as well as a notable rise in backlogs of work, to suggest that the capital has decent growth momentum heading into March.
"Business confidence increased in most regions and nations in February and is now notably higher than last Autumn, amid a more settled political backdrop and easing recession concerns.
"Slowing rates of input cost inflation are another cause for optimism, even if they still remain high by historical standards. One area of continued strong cost pressures is wages, with a rise in employment in ten of the 12 monitored regions and nations in February indicating that labour market conditions remain tight.
"Rates of inflation in prices charged for goods and services remain stubbornly elevated, and even ticked up in three cases in February, to suggest little let-up in the rising cost of living."
Download the latest NatWest Regional PMI® Report February 2023 (PDF 246KB)