SW business activity rises amid ‘muted’ demand conditions

Business activity across the South West rose slightly for the second straight month in February despite relatively muted demand conditions, with firms registering a further drop in new business.

At the same time, input costs continued to rise sharply, which led firms to shed staff at a quicker pace. However, firms expressed much greater optimism around the 12-month outlook for output.

At 50.2 in February, the 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 – was unchanged from January and signalled a further slight rise in output. Growth of output was often attributed to investment in new sites and the start of new projects.

The amount of new work received by South West private sector firms fell for the third successive month in February. That said, the pace of decline was little-changed from January and only mild. There were reports that relatively muted market conditions and tighter client budgets had dampened demand. Nevertheless, some firms indicated that improvements in client spending and successful marketing campaigns had supported sales.

When assessing the 12-month outlook for output, South West companies expressed a much greater level of optimism in February. Notably, the degree of positive sentiment picked up to the highest in four months and was above the UK-wide average. Planned company expansions, new product releases and projections of higher customer demand all supported growth forecasts.

Faye Long, chair of the NatWest South West Regional Board, said: “Latest PMI data indicated that South West private sector firms saw a further slight uplift in overall activity levels in February, but demand conditions remained sluggish overall.

“While the current climate looks subdued, particularly with further job cuts, it was encouraging to see business confidence rebound in February. Moreover, out of 12 UK regions, only firms in the Midlands were more upbeat about the year-ahead outlook. Inflation remains a key concern, however, with the latest survey showing price pressures stuck at historically elevated levels.”