Down from six out of 12 in July to just five in August, the number of regions where output increased was the joint-lowest in over three years. The East of England topped the rankings, recording its joint-fastest expansion in 11 months. Nonetheless, its Business Activity Index reading of 52.4 indicated only a moderate rate of growth overall.
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 growth signalled.
Yorkshire & Humber (51.7) was joint-second in the rankings (with London) and also saw a slightly faster increase in output. Wales (51.2) and London – July’s top performers – both lost growth momentum, while Scotland (50.3) again saw only a fractional expansion.
Output was unchanged across both the South East and East Midlands (both 50.0), and fell in all remaining areas, decreasing most sharply in Northern Ireland (45.4) and the North East (47.0). The North West (47.1) and West Midlands (47.5) saw the biggest downswings in performance compared with July. Completing the picture was a slight fall in output in the South West (49.3).
Demand
London led new order growth for the second month running in August. However, here and in the three other regions where order books rose – Yorkshire & Humber, West Midlands and East of England – the rate of increase slowed. There were negligible falls across the East Midlands, Wales and Scotland. Rates of decline accelerated in all remaining areas except Northern Ireland, which was nonetheless the worst performer.
Capacity
Employment growth was led by Yorkshire & Humber for the third month in a row in August. London remained second in the rankings, the East of England third and the North West fourth, though job creation slowed in each case. Eight out of the 12 areas saw workforce numbers fall, the highest number since February. The East Midlands recorded the sharpest decrease for the second month running, followed by Wales.
The capital was the only region with any perceptible pressure on capacity, recording a marginal increase in backlogs.
Prices
Rates of input price inflation quickened across all 12 monitored areas in August. Northern Ireland saw the steepest overall rise in costs as well as the most marked acceleration in the rate of inflation. The East Midlands was ranked second for overall cost pressures, ahead of London and the South East. Firms in the West Midlands recorded the slowest rise in operating expenses, albeit with the rate of increase at a three-month high.
In contrast to the trends in input costs, August saw prices charged rise at a slower rate in seven out of the 12 monitored areas, with the North East recording an outright decrease – its first for over three years. Firms in the East Midlands remained the most aggressive in their price setting, registering the steepest rise in charges for the fifth time in the past six months. Northern Ireland was ranked second and Yorkshire & Humber third.
Outlook
Yorkshire & Humber topped the rankings for business confidence in August, despite expectations in the region moderating to a five-month low. Sentiment in fact weakened in all monitored areas bar the South West, and fell the most in the West Midlands and Wales. Notably, the number of Northern Irish firms expecting output to fall over the next 12 months exceeded those predicting a rise, bringing business confidence down to the lowest since this particular series began in March 2017.
Sebastian Burnside, NatWest Chief Economist, commented:
“With output in Scotland barely rising, just a third of UK regions saw any notable growth in business activity in August, underlining the struggles businesses up and down the country are currently facing.
“The East of England came out on top for business growth in August. But it’s Yorkshire & Humber which is perhaps the brightest spot, ranking second for both output and new orders, whilst leading job creation and recording the highest business confidence.
“Sterling weakness is rearing its ugly head once again, causing business costs to rise at a quicker rate across every part of the country in August and hitting those in Northern Ireland particularly hard.”
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