Business activity in the South West region of England increased sharply in October, according to the latest NatWest South West PMI Business Activity Index. The index, which measures the month-on-month change in the combined output of the region’s manufacturing and service sectors, rose from 50.0 in September to 54.1 in October, signalling a strong expansion of business activity across the region. The index was also above the UK average of 53.4, indicating that the South West outperformed the national trend.
The rise in business activity in the South West in October was a rebound from the stagnation seen in September, when the index fell to the 50.0 no-change mark for the first time since February. The recovery in October was driven by a robust increase in new orders, which grew at the fastest pace since May. Firms often linked the upturn in sales to improved demand conditions, higher customer confidence, and new product launches.
The growth in new orders also led to a rise in employment, as firms hired more staff to cope with the increased workload. The rate of job creation was the strongest since June, and above the UK average. However, some firms also reported difficulties in finding and retaining suitable workers, and cited labour shortages, staff turnover, and Brexit-related uncertainty as challenges.
Inflationary pressures remain high
The South West region continued to face high inflationary pressures in October, as both input costs and output prices increased sharply. The rate of input cost inflation was the second-highest on record, behind only August’s peak. Firms attributed the rise in costs to higher prices for raw materials, fuel, energy, and transport, as well as wage pressures and supply chain disruptions.
The rate of output price inflation was also the second-highest on record, and above the UK average. Firms passed on some of the increased costs to their customers, but also reported that competitive pressures and price sensitivity limited their pricing power.
Optimism for the future
Despite the challenges of rising costs and labour shortages, firms in the South West remained optimistic about the outlook for the next 12 months. The level of positive sentiment improved from September, and was above the UK average. Firms expected that economic conditions would improve, demand would recover, and new opportunities would arise. Some firms also mentioned plans to invest in new equipment, technology, and marketing to support their growth.
Paul Edwards, chair of the NatWest South West Regional Board, said: “The South West region bounced back from September’s stagnation, and saw a strong rise in business activity in October, thanks to a robust increase in new orders and customer confidence. The region also outperformed the UK as a whole, and showed resilience in the face of rising costs and labour shortages. The region’s firms also remained optimistic about the future, and expressed their intentions to invest and innovate to achieve their growth ambitions.”