Key Findings
- Businesses in all regions feel effects of inflationary pressures in January
- London and North East drive economic growth for country
- Northern Ireland remains the most resilient labour market
Four of the 12 UK nations and regions recorded business activity growth in January, according to the latest NatWest Growth Tracker.
The NatWest Regional Growth Tracker 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.
As in December, London and the North East were the key drivers of activity growth throughout January, followed by Wales and South West with businesses there declaring increases in output during the first four weeks of 2025.
However, like the rest of the UK, most businesses reported steep increases in prices charged for goods and services. The South West and East of England recorded the highest rates of output price inflation, respectively, while the greatest acceleration was registered in the West Midlands. The North East was the one exception, posting a fractionally slower increase in prices charged than the month before.
Sebastian Burnside, NatWest Chief Economist, commented:
“London started 2025 as it ended 2024 – as the regional driver for growth for the UK. The North East, Wales and South West also enjoyed a positive start to the new year but in other areas, elevated price pressures are having an effect.
"Firms in every region of the UK reported rising cost pressures in January, as well as indicating steep increases in prices charged for goods and services too.
“The Bank of England appears to agree; last week it raised its inflation forecast to 3.7%. And whilst the Monetary Policy Committee hopes this rise is temporary, they are mindful of risks from increasing wages, national insurance contributions and energy costs.
“Against this backdrop demand has held up strongest in London and the North East, whilst Northern Ireland has the most resilient labour market, with job creation continuing for 25 consecutive months.”
Demand
As was the case in December, London and the North East were the only areas to record a rise in new business during the opening month of the year. Demand decreased elsewhere, and rates of decline accelerated in most cases. This included Northern Ireland, which registered the steepest overall drop in inflows of new work, and one that was the sharpest since December 2022.
Outlook
Expectations towards growth in the coming year remained positive across the board in January, but optimism weakened in many cases. This included Northern Ireland, which recorded its lowest business confidence for just over two years. Firms in London were the most positive about the outlook ahead of those in the West Midlands, with both regions going against the general trend and seeing sentiment improve.
Employment
All but one of the 12 monitored nations and regions recorded a decrease in employment for the second month running in January. The exception was once again Northern Ireland, although employment there rose only fractionally and at the slowest rate for over two years. The West Midlands saw the steepest drop in workforce numbers, followed closely by East of England.
Capacity
Backlogs of work (i.e. new orders or projects awaiting completion) fell almost universally at the start of the first quarter. Firms in Northern Ireland recorded the most marked drop in outstanding business, followed by those in the North West. Only the North East showed signs of increasing capacity pressures, registering a fourth successive monthly rise in work-in-hand.
Inflation
Businesses in all parts of the UK faced increased cost pressures in January. The fastest rate of input price inflation was recorded in the North East, where it reached the quickest since March 2023. Businesses in Wales recorded the slowest cost increases, though even there the pace of inflation was above the long-run series average.
