AT 52.5 in February, the headline NatWest South West PMI® Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – increased from 47.0 at the start of 2023.

This signalled the first increase in activity across the region for seven months, albeit one that was modest and slightly softer than the UK average.

Supporting the fresh rise in activity was a renewed upturn in new business, which firms often attributed to firmer underling demand conditions.

This translated into improved confidence around the 12-month outlook for activity, which hit a one-year high in February, and the first expansion of staffing levels for three months. However, inflationary pressures remained elevated, with companies seeing further marked increases in input costs and output charges.

The amount of new business placed with South West private sector firms increased during February, thereby ending a seven-month sequence of decline. The rate of expansion was mild, however, and slower than the UK-wide average. Companies that registered higher sales often mentioned that customer demand had strengthened amid improved sentiment around the outlook.

Private sector companies operating in the South West expressed a greater degree of optimism regarding the 12-month outlook for output in February. Notably, the overall level of positive sentiment hit a one-year high. It also exceeded the series long-run trend and that seen at the national level. Upbeat forecasts were often linked to business expansion plans, investment in new technology, improved marketing and new contract wins.

Having fallen in the previous two months, staffing levels at South West private sector businesses increased during February. The rate of job creation was mild, but nevertheless the best seen since July 2022.

The upturn was also slightly quicker than that seen across the UK as a whole. Anecdotal evidence indicated that firms had added to their payroll numbers due to improved confidence around the outlook, the filing of vacancies and new projects.  

Latest survey data pointed to a fresh rise in unfinished work at private sector firms in the South West. Though only slight, it marked the first increase in backlogs since June 2022. Outstanding workloads rose at a similarly marginal pace at the national level.

Panel members linked higher levels of work-in-hand (but not yet completed) to increased sales and staff shortages.

The seasonally adjusted Input Prices Index posted comfortably above the neutral 50.0 level in February, signalling a further substantial increase in cost burdens faced by South West private sector companies.

Expenses were pushed up by a number of factors, according to panellists, most notably for staff, utilities, food and raw materials. That said, the pace of increase slipped to a near two-year low.

Input cost inflation also cooled to a 22-month low at the national level, and was broadly in line with that seen in the South West.

Output charges set by South West private sector companies rose again in February, thereby stretching the current sequence of inflation to 26 months. There were widespread reports of firms raising their selling prices as part of efforts to pass on additional expenses to customers. The pace of increase softened from February, but nevertheless remained sharp overall.

Across the UK as a whole, the rate of output price inflation edged down to an 18-month low and was similar to that recorded in the South West.

Chard & Ilminster News: “The latest PMI data painted a positive picture of South West private sector performance in February.”“The latest PMI data painted a positive picture of South West private sector performance in February.” (Image: NatWest)

Paul Edwards, Chair of the NatWest South West Regional Board, said: “The latest PMI data painted a positive picture of South West private sector performance in February, with firms seeing fresh rises in output, sales and employment.

“The turnaround in conditions was reportedly due to improved customer demand and stronger confidence around the outlook, which led clients to push on with projects and place more orders.

“Notably, business confidence around the year-ahead improved to its highest since February 2022 as firms anticipate a sustained recovery in economic activity and increased investment.

“However, strong cost pressures persisted, driven in part by rising staff and energy costs.

“Although input price inflation slipped to a 22-month low, it remained much higher than the historical average, and contributed to a further marked increase in selling prices.”