Recovery in NW economy gains momentum in April, but cost pressures remain an issue

The North West private sector showed solid growth in April, the latest Regional PMI survey data from NatWest has revealed.

Firms in the region reported a strengthening of demand and were optimistic about growth prospects in the coming year. Employment, meanwhile, fell slightly and for the first time in four months as businesses faced an increase in cost pressures.

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 – registered above the 50.0 no-change threshold for the fourth month running in April.

At 54.0, up from March’s 52.7, the latest reading indicated a solid and accelerated rate of growth that was the quickest seen for two years.

In a sign of demand conditions continuing to improve across the North West private sector, firms in the region recorded a fourth straight monthly rise in new business in April. Furthermore, the rate of growth accelerated to the quickest in nearly two years. The increase in new work was centred on the service sector, where companies reported improved customer confidence, the provision of new services and successful marketing campaigns.

Businesses in the North West remained optimistic about growth prospects in the coming year in April.

The degree of optimism eased from March’s 13-month high, but it remained above the series trend and was broadly in line with the UK-wide average. According to panel member reports, activity was expected to rise on the back of new and improved products, growing market confidence and greater export sales.

Workforce numbers across the North West private sector ticked down slightly in April, marking the first decrease for four months.

According to underling data, the result mainly reflected job shedding in the manufacturing sector, in which there were reports of efforts being made to contain costs. Across the UK as a whole, employment was broadly unchanged from the month before.

Despite inflows of new business rising in recent months, there was still little pressure on business capacity as backlogs of work continued falling at the start of the second quarter. April marked the 23rd month in a row in which a decrease in outstanding business has been recorded.

The rate of depletion even accelerated slightly to the fastest in three months, and it was one of the quickest among the 12 regions and nations monitored by the survey.

Cost pressures increased across the North West private sector in April.

The rate of input price inflation rose noticeably since March – its fifth increase in the past seven months – to its highest for just under a year. There were reports from surveyed companies of higher energy and raw material costs, alongside a rise in staff pay, which was, in part, linked to changes in the National Living Wage (both its level and coverage).

While cost pressures facing firms intensified in April, average prices charged for goods and services rose more slowly during the month. The rate of output price inflation was, in fact, the weakest seen for more than three-and-a-half years and the lowest among the 12 regions and nations monitored.

Underlying data showed similar price-setting trends across both manufacturing and services.

Malcolm Buchanan, chair of NatWest North Regional Board, said: “The recovery in the North West private sector gained momentum in April as business activity growth accelerated to its fastest rate in two years.

“Encouragingly, a sustained upturn in new business in the region points to a strengthening of underlying demand and is fuelling hope among firms that activity can continue rising over the coming year.

“Cost pressures do, however, remain an issue with the data suggesting that output prices are not keeping pace with those input costs.”