The UK economy is showing signs of recovery after the after the slowdown caused by the emergence of Omicron at the end of 2021.
Labour markets are on the up but sharply rising prices are needling businesses everywhere, according to the latest PMI (Purchasing Managers’ Index) Business Activity Index for January.
The fact-based indicator of regional economic health is published each month and tracks the monthly change in the output of goods and services across the private sector.
Business activity rose across almost all UK regions in January, and at a faster rate in most cases. London continued to lead growth despite being one of the few areas to have lost momentum.
Northern Ireland saw the greatest upswing in performance, rising six places in the rankings to fifth overall while the North East recorded the only fall in output, its third in as many months.
Sebastian Burnside, NatWest Chief Economist, said: "Most regional economies across the UK made a positive start to 2022, as the uncertainty surrounding the Omicron variant eased and restrictions were loosened. Output growth generally picked up amid signs of demand starting to rebound in January.
"Businesses across all parts of the UK are predicting 2022 to be a good year for growth, which is translating into more new jobs across local economies. The broad-based recovery in regional labour markets that began last spring continued into the new year, despite reports of tightness in the job space.
"Elevated cost pressures continue to pose a challenge for the UK's businesses and consumers alike, however. With the survey's measures of firms' input and output prices staying close to record highs in all regions, and in some cases even reaching new peaks, the cost-of-living squeeze we've seen in recent months is set to continue.
Demand
Growth of new business was led by London in January, the third month in a row in which this has been the case. Here, and in seven of the 11 other monitored regions, the rate of expansion in new orders gathered pace. The only outright decrease in new work was recorded in the North East – its first decline for almost a year.
Capacity
All 12 monitored regions recorded a rise in private sector employment in January, the ninth month in a row in which this has been the case. The East Midlands topped the rankings for job creation for the first time since March 2018, ahead of the East of England and North West respectively. The slowest increase in employment was in the North East, where workforce growth eased to near-stagnation.
Higher backlogs of work were seen in almost every region in January, with rates of accumulation accelerating in most cases. The steepest overall rise in work-in-hand was once again recorded in Wales, followed by some distance by the East Midlands and South West respectively. The only decrease in outstanding businesses was seen in the North East.
Prices
All 12 monitored regions continued to record sharp rates of input cost inflation that were well above their respective long-run averages. Northern Ireland topped the rankings in January, closely followed by Wales and the North East. The slowest rise in input prices was seen in Scotland, though even here the increase was sharp.
Sharp increases in average prices charged for goods and services remained a prominent feature across all regions in January. Northern Ireland recorded the sharpest increase ahead of Wales. Next was Yorkshire & Humber, which, like both the West Midlands (ranked fourth overall) and East of England (joint-seventh), registered a record rate of output price inflation.
Outlook
Businesses operating in London showed the greatest optimism towards the 12-month outlook for activity, followed closely by their counterparts in Yorkshire & Humber. Expectations improved in nine out of the 12 monitored regions, most notably in the North West. Northern Ireland remained at the foot of the rankings despite also seeing business confidence strengthen since December.
