Region’s business activity growth quickens to eight-month high

Business activity in Yorkshire and the Humber’s private sector economy increased at the fastest pace in eight months during May, according to the latest NatWest PMI data.

Underpinning the quicker output growth was an upturn in new business, which grew at the strongest pace since September 2018.

On the cost front, despite being sharp, the rate of input price inflation eased to a 35-month low. Meanwhile, the faster growth in activity coincided with stronger business confidence, which reached a seven-month high in May.

The headline NatWest Yorkshire & Humber Business Activity Index is a seasonally adjusted index that measures month-on-month changes in the combined output of the region’s manufacturing and service sectors. The index rose to 53.4 in May from 52.4 in April. The latest reading was the highest recorded in eight months and compared favourably with a UK-wide figure of 50.9.
By sector, May saw increases in activity at both manufacturers and service providers.

Growth in new orders placed with Yorkshire & Humber companies was a significant factor driving the upturn in business activity during May. New business has now risen for two consecutive months, with the latest increase the fastest since September 2018. Anecdotal evidence from panellists stated that they had observed an improvement in demand conditions during May.
With demand for the region’s goods and services rising solidly, firms in Yorkshire & Humber expanded capacity by taking on additional staff. The rate of job creation was solid and the fastest in six months.

The level of unfinished orders among Yorkshire & Humber firms, meanwhile, declined for the eighth consecutive month, as companies sought to reduce their backlogs of work. The rate of backlog depletion quickened from April.

Input cost inflation in Yorkshire & Humber softened to a 35-month low, but remained historically sharp in May. Panellists cited increases in staffing costs and raw materials (notably steel and fuel) as behind the latest rise in operating expenses. Cost burdens among Yorkshire & Humber companies have grown on a monthly basis since April 2016.

Greater cost burdens were partly passed on to clients in the form of higher output charges. That said, the rate of charge inflation eased slightly from April.

Latest data showed a further improvement in local firms’ confidence for output over the coming year, with sentiment increasing to a seven-month high. Investments in new technologies and expectations of greater customer orders were just some of the key factors cited by panellists as reasons to be optimistic.

Richard Topliss, chair, NatWest North regional board, said: “May saw a welcome boost in activity among Yorkshire & Humber firms, alongside solid increases in employment and new business, which grew at the fastest pace in six and eight months respectively.

“Price pressures among regional businesses eased, with the slowest rise in operating expenses in almost three years. This helped cushion business margins and allow a softening of output charge inflation.

“Looking forward, business confidence towards future output was the highest in seven months amid expectations among many firms of even stronger customer demand ahead.”

NatWest economist Nick Stamenkovic added: “Yorkshire & Humber was the fastest growing UK region in May, aided by higher new orders. Employment increased to a six-month high and business sentiment improved further.”