Demand for South West goods and services underpins output growth
Favourable demand for South West goods and services underpinned growth of sales and output in October.
The NatWest Regional Growth Tracker data showed that the latest increase in new business was substantial and above the long-run series average, despite slowing from September’s two-and-a-half-year high. Subsequently, local firms scaled up output.
The trend for employment remained muted, however, as firms observed a lack of pressure on operating capacity. Meanwhile, cost pressures receded to their lowest in over four years but charge inflation ticked higher.
Up from 53.7 in September to 54.1 in October, the headline South West Growth Tracker 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 – highlighted a marked rate of growth.
Private sector companies indicated a sharp increase in new business intakes at the start of the fourth quarter, which they attributed to positive client appetite. The rate of expansion retreated from September’s 30-month high, but remained among the strongest over this period and outpaced its long-run average.
The overall rate of input cost inflation across the South West slipped to its lowest in over four years, and was below its long-run average. Companies reported greater wage bills and licence fees, but observed reduced pressure from electricity, fuel, gas and various materials including aluminium, glass, paper and timber.
Faye Long, chair of the NatWest South West Regional Board, said: “October data showed a desirable combination of strengthening output growth and receding cost inflation across the South West. Even with a softer increase in sales, the region remained among the top performers of the 12 monitored areas of the UK. Hiring was relatively muted, but again this trend was better than in most parts of the UK. Local firms welcomed reduced price pressures from some of their expenses such as electricity, fuel, gas and materials like aluminium, glass, paper and timber. October was the first month in four years in which cost inflation was below its trend level. With demand conditions remaining favourable, local companies were more aggressive in their pricing strategies, though the rate of charge inflation remained below that for input costs.”
Performance in relation to UK
The local rise in output and sales were the third-fastest of the 12 monitored UK regions and nations.
Local companies remained strongly confident of a rise in output over the course of the coming year, buoyed by the prospects of contract renewals, expansion plans and marketing initiatives. The overall level of positive sentiment slipped to a five-month low, however, amid some uncertainty arising from the late-October government budget. Firms were slightly less upbeat than the UK average.
As was the case in September, there was only a fractional increase in private sector employment across the South West. Restructuring efforts at some companies and a lack of pressure on operating capacities were some of the factors that hindered job creation. Nevertheless, the South West was one of only four UK areas to see an increase in workforce numbers at the start of the fourth quarter.
October data pointed to stable levels of outstanding work at South West companies. Following a fractional rise in September, the respective seasonally adjusted index registered at the 50.0 no-change mark. London and the North East recorded fractional increases in backlogs, with declines evidenced elsewhere.
Relative to other parts of the UK tracked by the survey, the South West came fourth in the input cost inflation rankings. Sustained increases in cost burdens fuelled charge inflation in October. Selling prices rose to the greatest extent in three months. On this front, the South West topped the regional rankings.
