Momentum builds in North West private sector, latest data shows

Momentum continued building across the North West private sector economy in February, with business activity in the region rising for the second month running and at the quickest rate since April last year, the latest Regional PMI survey from NatWest showed.

The upturn was driven by stronger demand and helped lift business confidence to its highest for eight months.

Employment held steady, however, with firms coming under pressure from rising input costs.

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 further above the critical 50.0 mark in February, rising from January’s 51.5 to a 10-month high of 52.7.

The rate of growth signalled by the index was only slightly below the UK-wide average (53.0).

February’s survey pointed to a pick-up in demand across the North West private sector, with firms in the region reporting inflows of new business rising for the second month running and at the fastest rate since May 2022.

The pace of growth was the third-strongest nationally, behind London and the East Midlands. Underlying data showed that the increase in new work was centred on services firms, who highlighted the influence of greater marketing, new products and a general improvement in client confidence.

A second consecutive monthly increase in business expectations was seen in the North West in February. The degree of optimism subsequently reached the highest since June last year and was back above its long-run average. In cases where activity was forecast to rise in the next 12 months, firms attributed this to investment plans, increased marketing efforts, entry into new markets and hopes for an upturn in market demand.

The level of private sector employment was unchanged in February compared with the month before. The stagnation in the region’s workforce numbers followed a solid rise at the start of the year and contrasted with a slight increase across the UK as a whole.

Although some companies reported taking on additional staff to meet increased demand, others commented that their priority was to cut costs.

While firms in the North West continued to work through their outstanding business (ie orders awaiting completion) during February, they did so at a slower rate.

The decline in backlogs, in fact, moderated for the sixth month in a row to the weakest seen since last May. Work-in-hand fell sharply in manufacturing, offsetting a rise in the service sector.

Businesses’ input prices rose at a faster rate in February. After slipping to a three-year low last September, cost inflation has now risen in four of the past five months and reached its highest since July last year.

That said, it remained below the UK-wide average, which, likewise, ticked up. Wage pressures were the main driver of an increase in operating expenses, according to feedback from surveyed firms, with higher prices charged by suppliers said to be another factor.

The sharp and accelerated increase in input costs in February contributed to a pick-up in the rate of output price inflation, as more businesses looked to pass on at least some of the burden to customers. Average charges for goods and services rose to the greatest extent for seven months.

That said, pricing power in the region generally remained moderate by national standards, with only Northern Ireland seeing a slower rise in output prices.

Malcolm Buchanan

Malcolm Buchanan, chair of the NatWest North Regional Board, said: “February’s PMI survey made for generally pleasant reading, showing business activity rising for the second month in a row in the North West.

“More to the point, growth has picked up speed, supported by improved underling demand. Businesses in the region are now looking to the outlook with greater optimism.”

He added: “Despite these positive trends, employment held steady, which wasn’t all that surprising given the notable rise in workforce numbers the month before and the fact that business cost pressures have started creeping up again. Input prices rose to the greatest extent for seven months in February, amid ongoing wage pressures and signs that the Red Sea disruption is beginning to impact prices.”