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Business activity growth slows in December amid COVID-19 resurgence

A fresh wave of COVID-19 infections acted as a headwind to growth throughout the UK during December, the final NatWest Regional PMI® data for 2021 showed.

Rising prices meanwhile remained a prevalent feature in all areas, albeit with cost pressures easing from recent record highs. Employment levels nevertheless continued to recover across the board.

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.

December saw a general slowdown in business activity growth across the UK regions. London remained the fastest-growing area but saw its Business Activity Index drop from 64.1 in November to 57.5, signalling a marked loss of momentum. The North East (49.7) saw the only outright fall in output, though the rate of decline was marginal.

Demand

Firms in the capital once again noted the steepest increase in new business in December. However, the rate of growth eased sharply since the previous survey period, with nine other regions also recording slower increases in new orders. Inflows of new work stagnated in the West Midlands, while Northern Ireland* recorded a further modest decline.

Capacity 

There was a further broad-based rise in employment in December, albeit with rates of job creation slowing in most cases. The only exceptions were the East Midlands, East of England and South West, all three of which were directly behind London at the top of the rankings. The slowest rise in employment was once again recorded in the North East.

December saw a rise in backlogs of work across all UK regions. The steepest increase by some margin was recorded in Wales, which was the only area to register a faster rate of accumulation than in the previous survey period. At the other end of the scale, the North East saw only a fractional increase in outstanding business.

Prices

All 12 monitored regions recorded slower rises in firms' input prices in December. However, rates of cost inflation remained among the fastest on record in all cases, with each having been at an all-time high in either October or November. Northern Ireland registered the steepest overall increase in costs ahead of the East Midlands, while London recorded the slowest.

Latest data showed sharp increases in prices charged across the board in December. Although rates of inflation slowed in the majority of cases, they were still historically elevated. Against the general trend, Wales (which ranked second overall behind Northern Ireland), the West Midlands and East of England all posted fresh record increases in output prices.

Outlook

Businesses in all parts of the UK were optimistic about growth prospects in the year ahead in December. Yorkshire & Humber recorded the highest expectations, followed by the South East and West Midlands. The East Midlands, which ranked fourth, saw the largest upswing in confidence since November. Sentiment was the least positive in Northern Ireland.

  • Coverage in Northern Ireland also includes construction and retail, which were the main drags on new business.

Sebastian Burnside, NatWest Chief Economist, commented:

"The resurgence of the pandemic in December put the brakes on the UK's economic recovery, with each nation and region feeling the effects as people changed their behaviour in response to rising cases. But despite the similarities to previous waves business activity levels seem to have been more resilient this time, due in part to comparatively lighter restrictions.

"The labour market was a bright spot for all regions in December, as was the case throughout most of last year. Although in many instances the pace of job creation slowed, rates of employment growth generally remained solid by historical standards, supported by continued optimism towards growth prospects in 2022.

"Rates of input price inflation eased universally in December, though this won't have provided much respite to businesses as cost pressures continued to run hot by historical standards. Businesses managed to pass on higher costs to customer during 2021 as demand strengthened, and December was no exception albeit with rates of output price inflation ticking down from record highs in November in some cases.”

Download the December 2021 NatWest Regional PMI® report