North West private sector returns to growth in February, led by service sector
The latest UK Regional PMI data from NatWest showed an increase in business activity across the North West private sector in February, the first since August last year.
The upturn came amid signs of a slight pick-up in demand, which was partly driven by improving confidence among customers, the survey found.
The headline North 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 – moved back above the 50.0 no-change threshold in February, registering 52.3 from January’s 47.2.
It signalled the fastest growth in business activity for nine months. Underlying data showed that the expansion owed exclusively to a rise in services activity, with manufacturing output remaining in decline.
Latest data showed an upturn in inflows of new business across the North West private sector, thereby ending a seven-month sequence of contraction.
The increase was confined to the region’s service sector, where there were reports of growing client confidence amid hopes of a peaking of interest rates, although the downturn in manufacturing new orders also showed signs of easing.
The rate of growth in new business was slightly below the average for the UK as a whole, however.
Business confidence across the North West private sector strengthened for the fourth month running in February, taking it further from last October’s low point – seen in the aftermath of the Government’s ‘mini’ budget – to the highest for a year. Anecdotal evidence showed increased optimism among local firms towards the general economic outlook, alongside hopes of greater market shares and the successful launch of new products. Expectations were the second highest nationally behind only the West Midlands.
February’s survey indicated another modest rise in private sector employment across the North West, following similar increases in each of the previous four months. Overall, regional workforce numbers have now increased on a monthly basis throughout the past two years. The rate of job creation during the latest survey period was broadly in line with the UK average.
Underlying data indicated contrasting trends at the sector level, with a solid rate of hiring among services firms being partly offset by job cuts at manufacturers.
The amount of outstanding business at firms in the North West fell for the ninth month in a row in February, as firms completed orders at a faster rate than they received them. The rate of depletion eased to the weakest since last November, but the result, nevertheless, contrasted with a slight rise in backlogs at the UK level – the first increase for four months. Signs of excess capacity were most prevalent in the manufacturing sector.
Cost pressures faced by firms in the North West remained strong by historical standards in February. Elevated energy prices, wage demands and generally high inflation were all cited as sources of cost inflation by surveyed businesses.
The rate of increase in input prices did, however, ease further from the record highs in 2022 to its lowest for two years, and was also weaker than in any of the other surveyed regions.
Selling prices went against the trend in underlying costs, rising at a quicker rate for the second month in a row in February.
Despite having come down from last year’s peak, the rate of output price inflation remained among the quickest on record and was faster than at any time in the series history prior to May 2021. Sector data indicated similarly sharp increases in both factory gate charges and services selling prices.
Malcolm Buchanan, chair of NatWest North regional board, said: “We saw a much-welcomed increase in business activity across the North West in February, which marked the first growth in the region for six months and broadly tallied with the UK-wide picture.
“The survey showed that the upturn was driven by a pick-up in demand, with businesses commenting on improved confidence amongst clients as apprehension around inflation and rising interest rates calmed somewhat.
“Indeed, businesses themselves are increasingly optimistic about the outlook, with expectations amongst North West companies improving substantially from the month before and now the second-highest nationally.
“A further easing of cost pressures from the highs in 2022 has likely helped brighten the mood among firms, but the survey tells us that selling prices are still rising much faster than normal as high costs – including growing wage demands – are passed on by businesses.”