Overlay

More UK regions slip into economic contraction in August

Latest Regional PMI® data from NatWest showed economic uncertainty and high inflation weighed on demand for goods and services.

  • Just three out of 12 regions record growth in business activity
  • Employment rises in most areas, albeit with waning momentum
  • Business cost pressures remain high but ease further from recent peaks

 

Latest Regional PMI® data (PDF 250KB) from NatWest showed that more UK regions had slipped into contraction midway through the third quarter, as economic uncertainty and high inflation weighed on demand for goods and services. Most areas once again saw a rise in employment, though rates of job creation slowed. Although business costs continued to soar, rates of increase did at least moderate further from the recent historical highs.

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.

Just three out of the 12 monitored UK regions recorded a rise in business activity in August, the fewest in over a year-and-a-half. Growth in London was solid but eased notably since July (index at 54.9), whilst both the North West (51.8) and Yorkshire & Humber (51.4) recorded only modest rates of expansion. Activity fell elsewhere, with the steepest declines registered in the North East (43.4) and East of England (43.5).

 

Sebastian Burnside, NatWest Chief Economist, commented:

“July's survey had flashed warning signs when it showed inflows of new business falling across most UK regions, and now the latest data for August confirm that this downturn in demand is increasingly weighing on economic activity.

"Just a quarter of UK regions recorded growth in output levels in August, with London seeing the only real noteworthy expansion. However, even in the capital, which led the way in terms of business activity and employment, there were further signs of a loss of momentum as growth slowed and the rate of job creation eased to a 16-month low."

 

Demand

Just one-quarter of the 12 monitored regions recorded higher inflows of new business in August, with trends weakening in most cases. London continued to see the strongest growth, though the increase in the capital was the weakest seen for one-and-a-half years. At the other of the scale, the North East and Northern Ireland* saw particularly steep declines in demand.   

Prices

Businesses all across the UK continued to face strong cost pressures during August. However, although remaining elevated by historical standards, rates of input price inflation slowed across the board. Northern Ireland remained at the top of the rankings for cost increases, a position it has held in five of the past six months, while the West Midlands stayed at the bottom.   

The widespread pass-through of higher costs by businesses saw average prices charged for goods and services rise sharply across all regions in August. Just over half of monitored areas recorded a slower increase than in July, but rates of inflation still remained well above their long-run averages in all cases. The North East registered the steepest overall rise, followed by Wales.

Capacity

Despite signs of weakness in activity and demand, almost all regions recorded a rise in employment in August. The only exception was the North East, where workforce numbers fell for the third month running. Rates of job creation not only slowed, however, but they varied widely, with a further steep rise in workforce numbers in London contrasting with only marginal growth in the South West.

Backlogs of work fell across almost every region in August, in a sign of a general easing of capacity pressures among businesses. Firms operating in the North East recorded the most marked decline, followed by those in the South West. London once again bucked the trend, recording a fourth straight monthly rise in outstanding business.

Outlook

The majority of regions recorded a drop in business confidence towards the outlook in August. The three highest-ranked areas, Yorkshire & Humber, the South East and London, went against the broader trend and recorded improved sentiment, as did the East Midlands (ranked eighth). Expectations turned negative in the North East, while firms in Northern Ireland grew more pessimistic.

 

Click here to download the latest NatWest Regional PMI®  Report (PDF 250KB)