NatWest’s UK Regional Business Activity Shows Growth Despite Employment Challenges

NatWest’s UK Regional Business Activity Shows Growth Despite Employment Challenges

(IN BRIEF) The latest Regional PMI® survey data from NatWest reveals continued growth in business activity across most UK nations and regions in April, with London leading the expansion. Despite this positive trend, employment remains mixed, with only half of the areas experiencing job growth. Rising business costs, driven by wage increases, pose challenges for businesses, despite improved demand and capacity utilization. While confidence in growth prospects remains relatively strong, cautious hiring practices persist amid escalating costs, highlighting the delicate balance faced by UK businesses navigating economic recovery.

(PRESS RELEASE) LONDON, 14-May-2024 — /EuropaWire/ — Business activity continued to rise across almost all UK nations and regions during April, latest Regional PMI® survey data from NatWest showed. Just half of areas saw an increase in employment, however, with businesses facing a sharp, wage-led rise in costs.

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.

Nearly all nations and regions recorded a rise in business activity for the second month running in April. London (index at 57.4) continued to lead growth, recording its steepest rise in output for three months, ahead of the West Midlands (55.5) and Northern Ireland* (54.5). As was the case in March, only Yorkshire & Humber (47.3) saw activity decline, albeit with the rate of contraction there easing from the month before.

Demand

Ten of the 12 monitored UK nations and regions saw a rise in inflows of new business in April, indicative of improved underlying demand. London overtook Northern Ireland at the top of the rankings having recorded its strongest increase in new orders for three months. Decreases were meanwhile seen in Yorkshire & Humber and the East of England.

Capacity

Once again, there were mixed trends on the employment front in April. Northern Ireland topped the rankings for job creation for the second successive month, with Scotland also seeing a solid rise in workforce numbers. However, decreases were recorded in half of the monitored areas, the steepest of which was registered in the West Midlands.

Backlogs of work continued rising in London during April, the fifth month in a row in which this has been the case. They also increased in Northern Ireland for the first time in a year. In all other areas, there was a lack pressure on business capacity as outstanding business fell once again. The most marked decline was recorded in Yorkshire & Humber.

Prices

April saw a broad-based increase in cost inflation across the UK as many businesses faced a rise in staff pay. In all areas, input prices rose at rates well above their respective long-run averages. Firms in the South West recorded the strongest increase in operating expenses, followed by those in London. The least marked rise was in Scotland.

The fastest rise in output prices in April was recorded in the North East, where the rate of inflation hit an 11-month high. Scotland likewise saw a sharp and accelerated increase in prices charged. That said, most other areas recorded slower rates of output price inflation, including the lowest-ranked region, the North West.

Outlook

Business confidence towards growth prospects in the coming year eased in the majority of nations and regions in April, although expectations were still stronger than their respective long-run averages in most cases. Optimism was highest in the South East, followed closely by the West Midlands, and lowest in Scotland.

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

Sebastian Burnside, NatWest Chief Economist, commented:

“Most areas of the UK are enjoying a revival in business activity, with growth even accelerating in most cases in April.”

“Yorkshire & Humber is the one area where we are yet to see the economy kick into gear, though the region’s firms are optimistic about their prospects for the coming year, as is the case across the UK.”

“Whilst there are generally positive signs for activity and demand, hiring remains somewhat lacklustre. Just half of the 12 nations and regions monitored by the survey saw employment rise at the start of the second quarter, which equated to broadly no change at the UK level.”

“Businesses appear to be taking a more cautious approach to hiring, at a time when costs are continuing to rise relatively sharply, not least due to staff pay increases. April’s near-10% jump in the National Living Wage, and the expansion of its coverage, has lifted rates of business cost inflation once again. Slower increases in prices charged for goods and services in April will be music to the ears of policymakers, but they will be keeping their eyes firmly on these numbers going forward should the economy continue to pick up speed.”

Notes to editors

Methodology

The NatWest UK Regional PMI® data are compiled by S&P Global from responses to questionnaires sent to companies that participate in S&P Global’s UK PMI surveys. S&P Global compiles data for nine English regions, Scotland, Wales and Northern Ireland (NUTS 1 definitions).

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.

The headline figure for each region is the Business Activity Index. This is a diffusion index calculated from a single question that asks for changes in the volume of business activity (at service providers) or output (at manufacturers) compared with one month previously. The Business Activity Index is comparable to the UK Composite Output Index. It is sometimes referred to as the ‘PMI’, but is not comparable with the headline UK Manufacturing PMI figure.

Underlying survey data are not revised after publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series.

The survey data for April were collected 11-26 April 2024.

For further information on the PMI survey methodology, please contact economics@spglobal.com.

About PMI

Purchasing Managers’ Index™ (PMI®) surveys are now available for over 40 countries and also for key regions including the eurozone. They are the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to www.spglobal.com/marketintelligence/en/mi/products/pmi.

About S&P Global (NYSE: SPGI)

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SOURCE: NatWest Group