NatWest UK Regional PMI® - October 2023

• Output contracts in nine of out 12 monitored regions and nations
• Local labour markets under pressure but showing signs of resilience
• Input cost inflation generally slows

Most areas of the UK saw a fall in business activity in October amid broad weakness in demand, according to the latest NatWest Regional PMI^® survey. Employment also declined in the majority of cases, albeit generally more slowly than in September. More often than not, business costs rose at a slower rate in October.         

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.

London remained the UK's top-performing region for output growth in October, its business activity index coming in at 53.8. It was one of just three areas (out of 12 monitored) where output rose during the month, alongside the West Midlands (50.7) and South West (50.1). Firms in the North East (43.5) recorded the most marked decline in business activity, followed by those in Wales (45.0).

Demand

Of the 12 monitored nations and regions, only London and the West Midlands recorded a rise in new business in October, with both seeing rates of growth quicken. The broader trend was one of weaker demand for goods and services, however. Firms operating in Yorkshire & Humber noted the steepest drop in new work, the sharpest in the region for nearly three-and-a-half years, followed by those in Wales.   

Prices

Business costs generally increased more slowly in October, with only Wales, Northern Ireland and the North West seeing rates of input price inflation quicken. Firms in London recorded the steepest overall rise in operating expenses, albeit the slowest in the region since April 2021, while those in the West Midlands faced the weakest increase.    

Average prices charged by businesses rose across all monitored nations and regions in October, and at quicker rates in half of cases. The strongest increase by far was recorded in London, which topped the rankings for the third time in the past four months. Companies in Northern Ireland recorded only a marginal rise in output prices, the weakest in just over three years.   

Capacity

Seven out of the 12 monitored regions and nations posted lower employment in October. However, this was down from ten in September, and where workforce numbers fell, rates of job shedding often eased. Scotland topped the rankings with a modest rise in staffing levels, with the West Midlands, Northern Ireland*, North West and East of England also seeing increases.  

For the fourth successive month, all areas of the UK saw a decrease in outstanding business (i.e. orders not yet started or awaiting completion). As was the case for new business, the sharpest drop in backlogs of work was in Yorkshire & Humber, followed by Wales. At the other end of the scale, firms in London recorded only a marginal decline.         

Outlook

Confidence towards future activity weakened across the vast majority of areas in October, with only the South West and Wales going against the trend. Nevertheless, expectations were optimistic across the board, and nowhere more so than in the West Midlands, which topped the rankings for a fourth straight month ahead of the South East.  

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

Sebastian Burnside, NatWest Chief Economist, commented:

"Most regional economies remained under pressure at the start of the fourth quarter, with activity falling in nine of the 12 monitored areas.

"London remains the main bright spot, having seen activity not only grow in October, but also at a solid rate. Businesses in the capital are reporting robust customer demand, which contrasts with the situation in almost every other area.

"There has been greater caution around hiring in recent months as businesses contend with lower activity and rising costs, and we saw further evidence of this in October as employment once again fell across the majority of areas. However, the latest results did at least point to some signs of resilience across local labour markets, with rates of job shedding generally easing and three regions even recording renewed rises in employment.      

"Whilst business costs generally rose more slowly in October, this didn't always translate into slower increases in prices charged for goods and services as rates of inflation ticked up in half of cases. There is some stickiness in inflationary pressures, driven by ongoing wage increases and the recent resurgence in fuel prices."