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NatWest UK Regional PMI® - July 2021

Business activity continues to recover across all regions in July, but rates of growth slow in most cases.

Levels of business activity continued to recover across all regions of the UK during July, albeit with rates of growth generally pulling back from the highs seen in the second quarter, latest Regional PMI® data from NatWest showed. Elsewhere, firms across the majority of areas reported unprecedented cost increases, with charges for goods and services generally rising sharply as a result.  

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. 

Topping the growth rankings in July was the South West, recording a Business Activity Index reading of 62.2. However, it was one of only two regions, alongside the East Midlands (59.7; ranked sixth overall), to see a faster increase in output. Northern Ireland* (54.1) was one of the areas that saw a loss of momentum and remained at the foot of the table.

Demand

For the fourth month running, all 12 regions monitored by the survey recorded a rise in inflows of new business. Rates of growth generally remained strong but eased notably in many cases. This included Wales, which nevertheless moved from second to first in the rankings ahead of the North West. Northern Ireland recorded the slowest increase in new work behind the East Midlands. 

Capacity 

The South West was the best-performing region for employment growth in July, seeing the rate of job creation accelerate to a record high. The majority of areas, however, recorded slower increases in workforce numbers than in June. The North East and Northern Ireland were two other exceptions, though the pair still registered the slowest overall rises in staffing levels.

Latest data showed a build-up of outstanding business across 11 of the 12 monitored areas in July. Wales recorded the steepest rise in backlogs of work by some margin. Next in the rankings was the South West, which was one of just three regions where the rate of accumulation accelerated. At the other end of the scale, firms in the North East recorded broadly unchanged levels of work-in-hand.

Prices

Record rates of cost inflation were seen across three-quarters of the monitored regions in July. This included Northern Ireland, which once again topped the rankings. The South West saw the greatest acceleration in input price inflation to sit in second place overall. The lowest cost pressures continued to be seen in London, though even here the rate of increase was a series record. 

Acute cost pressures drove steep increases in average prices charged for goods and services across all regions in July, albeit at varying rates of inflation. Output price increases were sharpest overall in Northern Ireland, followed by the East Midlands and Wales respectively. London meanwhile saw the slowest rise, with the rate of inflation dipping slightly since June (but still historically strong).   

Outlook

Firms in all parts of the UK remained upbeat about the year-ahead outlook for activity in July. Those in the South East reported the strongest optimism, followed by Yorkshire & Humber. However, the latter, like two-thirds of the regions monitored, recorded lower expectations than in June. Sentiment was weakest in Northern Ireland, where it dipped to a five-month low.  

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

Sebastian Burnside, NatWest Chief Economist, commented:

“Latest data showed a sustained broad-based recovery in business activity levels across all regions and nations of the UK at the beginning of the third quarter. Rates of growth have generally eased, however, with demand in almost all areas rising less sharply than during the earlier reopening phase in the second quarter.

"The South West bucked the slowdown and recorded the strongest overall growth in July, with firms in the region reporting a particularly strong boost from the latest easing of restrictions and benefiting from a 'staycation' boom.

"In line with recovering levels of activity, businesses in all corners of the country continued to take on more staff, with rates of job creation remaining historically strong despite also easing in most cases since June.

"Another common, albeit less positive feature across all areas of the UK is a sharp rise in cost pressures faced by businesses. We saw unprecedented input price increases across three-quarters of regions in July, reflecting widespread upward pressure on raw material costs and wages. 

"Although businesses remain confident about the outlook, growth expectations softened across the majority of areas. This is inevitable as we get closer to pre-pandemic levels of output, but it also reflects a number of concerns among businesses about supply bottlenecks, difficulty finding suitable staff, and associated inflationary pressures that could constrain future demand."

Download the July NatWest UK Regional PMI® (PDF 335KB)