Companies in the South West are continuing to recover from Covid disruption, but many have mounting concerns over cost pressures amid rising inflation and the invasion of Ukraine, new data has revealed.
There was a “sharp and accelerated” expansion of business activity in the region last month, according to the data from NatWest - but concerns over increased costs and ongoing supply chain disruption weighed on overall business confidence.
The headline NatWest South West 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 – increased from 54.0 in January to 59.6 in February. The rate of growth was the quickest seen for seven months and was similar to that seen at the national level.
Average input costs faced by South West private sector firms continued to increase in February, while inflation quickened to a three-month high. Input prices also rose rapidly across the UK as a whole.
According to the survey, higher costs for energy, fuel, staff and materials pushed up expenses in the latest survey period.
The report said South West companies were passing on some of the extra cost to customers in the form of higher prices. Output charges have now risen in each of the past 14 months, with the latest increase the sharpest since last October. However, the rate of inflation remained below the national average.
On a more positive note, South West private sector firms signalled a further acceleration of new order growth last month, with new business expanding at the quickest rate for three months.
Optimism towards the 12-month outlook for output has weakened since January but remained “robust” and well above the long-run survey average (66.8), NatWest said.
Businesses also continued to create jobs across the region last month, with South West private sector employment rising for the twelfth month in a row in February. The rate of job creation was the sharpest seen since last August although slightly softer than the UK-wide trend.
Companies that added to their payrolls in the latest survey period often mentioned efforts to expand capacity amid rising sales and the filling of vacancies - but a number of firms commented on challenges finding suitable staff to fill roles.
Adjusted for seasonal factors, the Outstanding Business Index signalled a sustained increase backlogs of work at South West private sector firms midway through the first quarter. Shortages of staff and materials, alongside rising sales, drove the latest build-up in outstanding business, according to panellists.
Paul Edwards, chair of NatWest’s South West regional board, said: “Latest NatWest PMI data showed that the South West private sector bounced back strongly in February as the Omicron wave receded.
“The easing of restrictions and firmer customer demand helped to push activity growth to a seven-month high and drove a sharper rise in sales, suggesting the sector has regained momentum since the slowdown around the turn of the year.
“However, cost pressures intensified, and alongside ongoing supply disruption, this weighed on business confidence. These worries will likely be exacerbated by the Russian invasion of Ukraine, and could in turn hamper the recovery in the months ahead."
