North West business activity growth hits nine-month high in February
The health of the North West private sector continued to improve in February, latest NatWest PMI (purchasing managers’ index) data showed, with the region seeing business activity rise at the fastest rate for nine months.
Less positively, however, the survey showed employment falling for the first time in three months as firms reported reduced optimism towards the outlook.
The headline NatWest North West Business Activity Index – a seasonally adjusted index that measures the change in the combined output of the region’s manufacturing and service sectors – registered above the 50.0 level separating growth from contraction for the second month running in February, following a five-month sequence of contraction at the end of 2019.
At 53.0, the latest reading was up from 51.7 in January and signalled a solid rate of growth that was in line with the UK average.
Underlying data showed that the region’s upturn continued to be underpinned by rising service sector business activity. The decline in local manufacturing output, meanwhile, eased.
February saw a pick-up in demand for goods and services across the North West.
This was highlighted by the volume of order books rising for the second month running, as firms cited the influence of reduced political uncertainty and increased client enquiries.
The rate of growth eased from January’s 16-month high, but it nevertheless remained faster than that recorded across the UK as a whole.
Despite seeing a sustained increase in inflows of new business at the start of 2020, firms in the North West continued to operate below full capacity.
Backlogs of work fell markedly and at a faster rate than in January, as many businesses completed orders at a faster rate than they received them.
A lack of pressure on capacity was reflected in a renewed decline in employment across the North West, following slight gains through December and January. Though only modest, the drop in workforce numbers contrasted with a further, albeit slower, rise nationally.
Encouraged by stronger demand, firms in the North West raised output prices during February.
Moreover, the rate of inflation accelerated to the quickest for 12 months.
In a number of cases, firms reported hiking charges to offset rising input prices, particularly wages and raw materials.
Notably, however, the overall rate of cost inflation was the slowest since June 2016, and the second-weakest among the 12 monitored regions.
North West Activity Index, February 2020
Firms’ expectations towards output over the next 12 months remained strongly positive in February. That said, the degree of optimism eased from January’s 16-month high, amid concerns about the outbreak of coronavirus in China.
Richard Topliss, chair, NatWest North regional board, said: “The North West private sector continued its positive start to the year into February.
“Business activity growth gained momentum and reached the strongest since May last year, with reports from local businesses that the reduction in political uncertainty following the General Election had released pent-up demand for the region’s goods and services.
“However, it’s important to consider that most of the field work for February’s survey was completed before the escalation of the coronavirus in Europe.
“The potential disruption to activity from virus containment efforts poses a new challenge to local firms, with the survey already revealing an impact on some of the region’s major export markets and a dip in business confidence.”
Other research published today shows that optimism across businesses in the UK jumped by the largest margin in a decade in February – but warns the prospect of the continued spread of coronavirus could threaten to reverse much of the gains.
The view comes in figures from the latest BDO Business Trends report, its Optimism Index, which it says provides the most comprehensive snapshot of business sentiment by weighting macroeconomic data from the UK’s main business surveys.
Today’s report revealed the index rose by 5.80 points in February and now stands at 101.64 – above the 100 level which represents the historical average.
The services industry experienced the sharpest rise as businesses welcomed the ending of the Brexit stalemate following the UK’s departure from European Union.
The surge in confidence reflects the underlying improvement in business conditions as a result of a more certain political and economic outlook, particularly around Brexit, after a long period of instability.
It follows three months of marginal increases in optimism as businesses appeared to be in ‘wait and see’ mode in the immediate aftermath of the General Election.
Historically, however, major macroeconomic shocks can knock several points off BDO’s Optimism Index, which means coronavirus could wipe out the gains made in February.
Ed Dwan
Ed Dwan, partner and head of BDO in the North West, said: “We have just witnessed the most significant uplift in business optimism in 10 years, and the impact of greater political and economic certainty brought by a new majority Government should not be underestimated.
“However, businesses will now be spending the coming weeks focused on mitigating the uncertainty caused by coronavirus.”
Elsewhere in BDO’s Business Trends report, there were clear signs of the impact of coronavirus.
BDO’s Inflation Index fell by 0.48 points to 95.59, largely driven by dwindling commodity prices caused by factories in China temporarily shutting. Input Inflation fell by 2.01 points to 92.33 as a result of fluctuations in global commodity markets.
Ed Dwan added: “The next month will be crucial in determining whether this optimism can remain, or if the ‘Boris Bounce’ will be brought back down to earth by the impact of the coronavirus outbreak. For once in recent times, it may be something other than the political landscape holding the UK economy back.”
