Recovery in North West business activity gathers pace in March

Richard Topliss

The recovery in business activity across the North West private sector gathered pace in March, with higher demand and growing optimism towards the outlook in turn leading to a rise in employment for the first time in more than a year, latest UK regional PMI data from NatWest showed.

The headline North West 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 – registered a reading of 56.5 in March, up from 50.3 in February.

This showed output levels rising at a solid and accelerated rate, and one that was the quickest since September last year.

Businesses in the North West reported a rise in inflows of new work for the first time in four months in March.

Moreover, the rate of growth was the quickest seen in more than three years, with surveyed businesses commenting on a general improvement in client confidence and increased demand due, in part, to schools reopening.

The strength of the upturn in new business in the region was in line with the trend for the UK as a whole.

Latest data showed a continued improvement in firms’ expectations for activity over the next 12 months in March, with the degree of optimism reaching the highest in more than four years.

Anecdotal evidence pointed to increased hope among local businesses of an end to COVID-19 restrictions on activity at home and abroad over the coming year. Sentiment towards the outlook was strongly positive across both the manufacturing and service sectors.

The prolonged sequence of job shedding in the North West that started last February finally came to an end in March.

Encouraged by increased demand and greater output requirements, local businesses raised employment to the greatest extent since September 2018. The rate of job creation was the second fastest among the 12 monitored regions, behind Yorkshire & Humber.

The decline in outstanding business at firms in the North West slowed in March. The rate of depletion was, in fact, only marginal and the weakest in the current six month sequence of reduction.

Underlying data indicated that a build up of orders at manufacturers had partially offset a continued decline across the service sector. The result, nevertheless, contrasted with a rise in backlogs of work across the UK as a whole, the first since September last year.

March’s survey showed a steep and accelerated rise in firms’ input costs. The rate of inflation quickened for the ninth month in a row to the highest since February 2017.

There were widespread reports from surveyed businesses of shortages of raw materials and components leading to higher input costs, while increased freight charges and a rise in fuel prices were also highlighted as factors.

Cost pressures were much sharper in the manufacturing sector than in services.

Many local businesses reacted to higher costs in March by raising their own prices during the month.

The extent to which average charges for goods and services increased was the greatest in almost a decade. Reflective of the relative levels of cost pressure in the two sectors, manufacturers noted a much steeper rise in output prices than their service sector counterparts.

Richard Topliss, chairman of NatWest North regional board, said: “We saw the first clear indications of a start of a recovery in business activity across the North West private sector in March, as the first phase of the easing in lockdown restrictions led to increased optimism and demand in the market.

“It was encouraging to see the tide having turned on the labour market front as well, with job creation returning for the first time since before the pandemic.”

He added: “The positive results for activity and employment are tempered somewhat, however, by the findings that cost pressures facing local businesses have continued to intensify.

“Latest data showed firms’ input prices rising at the fastest rate in more than four years, driven largely by surges in raw material and transport costs.

“Still, this has done little to dent business confidence, which continues to improve as more and more firms see an eventual end to COVID-19 restrictions at home and abroad in the months ahead.”

Meanwhile, research by the Federation of Small Businesses has found that close to two thirds (58%) of small firms expect their performance to improve this quarter, and fewer than one in three (31%) expect theirs will worsen, according to the latest FSB study of almost 1,700 business owners.

With trading restrictions easing across England and Wales today, the business group reports that its UK SBI confidence measure has risen to +27.3 in the first quarter of this year, up from -49.3 last quarter. The index is at its highest level since quarter three, 2014, when it hit +41.0, and is in positive territory for the first time since the second quarter of 2018.

More than half (51%) of those surveyed for the SBI expect their revenues to increase over the coming three months, the highest proportion since the summer of 2015. Fewer than one in four (24%) expect sales to fall – the same figure stood at 84% at this time last year.

The majority (53%) aspire to grow their firms over the next 12 months, the highest share since Q3 2019, marking a 22 per centage point jump compared with the same period last year

With the job retention scheme starting to wind down over the coming months, one in seven (14%) small firms with staff say they are likely to make some or all of their team redundant this quarter.

Mike Cherry

FSB national chairman, Mike Cherry, said: “It’s fantastic that our shops, hairdressers and gyms can get back to doing what they do best all over England from today, with some restrictions easing in other parts of the UK as well.

“The certainty provided by the Government’s road map is filling many small business owners with renewed confidence. We live in hope that the virus stays in retreat so the remaining indicative dates for unlocking can be met, enabling our vital night time economies, offices and travel and tourism businesses to get back to it as well.”

However, he added: “It’s worrying to see such a sizeable proportion of employers fearing redundancies over the coming months. Initiatives like Kickstart, as well as incentives to take on apprentices and trainees, need to be delivered efficiently over the coming months to protect against a job market shock and support the young people that have disproportionately borne the brunt of rising unemployment.”

He said policymakers also need to look at measures to encourage hiring activity.