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NatWest UK Regional PMI® - October

Regional economies hit by rise in COVID-19 cases and tougher restrictions in October.

Latest Regional PMI® data from NatWest showed a loss of momentum across the UK economy in October, with some areas seeing setbacks to activity amid tighter restrictions to tackle the spread of coronavirus disease 2019 (COVID-19).

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. 

Eight out of the nine monitored English regions recorded a rise in business activity in October. That said, growth slowed in all cases. The South East (business activity index: 57.1) recorded the steepest increase, followed by the East of England (54.9). The South West (49.7) was the only exception, registering a marginal fall in output after three months of growth. This was also the case for Northern Ireland* (49.9).  

Scotland (43.2) and Wales (44.1) both saw marked falls in activity in October, though the declines were notably slower than seen during the initial lockdown in the spring.

Demand

Only six of the 12 monitored UK regions registered a rise in new business in October, down from ten in September. The strongest growth was seen in Yorkshire & Humber, followed by the North East and South East, respectively. There were renewed declines in the West Midlands, Wales, London and the South West, while both Northern Ireland and Scotland saw accelerated rates of contraction.

Capacity 

Employment fell across all parts of the UK in October, the eighth month in a row in which this has been the case. For the second month running, the sharpest drop in payroll numbers was in the West Midlands. The next-steepest decreases were seen in Scotland, Wales and London, respectively. At the other end of the rankings, the East of England recorded the least marked fall in workforce numbers. 

A general lack of pressure on business capacity was reflected in a drop in backlogs of work across ten of the 12 monitored UK regions in October. The steepest falls were seen in Scotland, the North East and West Midlands. Only two areas recorded increases in backlogs, namely Yorkshire & Humber and Wales. For the former, the rate of accumulation was the quickest for more than two-and-a-half years. 

Prices

Eight of the 12 monitored UK regions recorded higher average output prices in October, led by a solid rate of inflation in the West Midlands – its fastest in just over two years. Yorkshire & Humber was ranked second, and the North West third. London recorded the most marked fall in selling prices for the fifth month running, while the East Midlands and South West both saw accelerated declines.

Input prices rose across almost all regions in October, and at a faster rate in most cases. The strongest overall cost pressures were recorded in Northern Ireland, with the North East and East of England close behind. London saw the only decrease in operating expenses, linked to lower staff and travel costs, though the rate of decline eased from the previous survey period and was only modest.

Outlook

The majority of regions recorded a drop in business confidence towards future output in October. For Northern Ireland, expectations turned more pessimistic. Elsewhere, firms generally remained hopeful of a rise in activity over the next 12 months. Yorkshire & Humber registered the strongest optimism, followed by the South West. London, which was ranked third overall, saw the biggest improvement since September.

Sebastian Burnside, NatWest Chief Economist, commented: "There was a clear downswing in momentum across all regional economies in October, as rising coronavirus cases led to new restrictions on activity and increased uncertainty.

"Tougher rules in Scotland in October and a "firebreak" in Wales led to marked decreases in business activity during the month, and we can expect similar patterns across England in November as the new lockdown restrictions come into effect. 

"A drop in expectations across most regions shows that businesses are anticipating a tough end to the year, yet still they remain strongly confident of being able to turn things around once the worst of the pandemic has passed. 

"For now, many businesses are in survival mode, which has unfortunately meant further job cuts. The extension of the furlough scheme and other measures announced  by the Government will be critical to limiting the impact through winter."

*Northern Ireland coverage includes construction and retail. For all other areas, coverage is confined to manufacturing and services.

Download the October NatWest UK Regional PMI® here (PDF 328KB)