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Birmingham Post
Birmingham Post
Business
Hannah Finch

Ukraine crisis and soaring costs continue to put pressure on UK businesses

The Ukraine crisis and supply cost pressures are damaging business optimism, a new report shows.

Data for the latest Natwest PMI report shows that while business growth continued to recover from the pandemic throughout March, firms are facing record price rises.

South West and Yorkshire & Humber lead business activity growth across the UK.

Sebastian Burnside, NatWest Chief Economist, said: "Latest Regional PMI data indicated robust growth in business activity across most parts of the UK in March as the economy continued to recover from the pandemic.

"But while activity has enjoyed a boost from the easing of COVID restrictions, which has in turn provided a strong tailwind for a sustained rebound in regional employment levels, clouds have started to gather as businesses and consumers come under pressure from rampant inflation.

"The fallout from Russia's invasion of Ukraine has seen global commodity prices soar, leading to sharp – and in most cases – accelerated increases in business expenses at a regional level. Adding to the inflationary environment, businesses are increasingly passing on higher costs to customers, with ten out of the 12 regions monitored by the survey registering record rises in average prices charged for goods and services.

"On the whole, businesses remained optimistic about the outlook, but the heightened economic uncertainty and escalation in price pressures have seen firms in every part of the UK lower their growth expectations for the year ahead."

The PMI Business Activity Index is the first fact-based indicator of regional economic health published each month, tracking the monthly change in the output of goods and services across the private sector.

In the figures below, a reading above 50 signals growth, and the further above the 50 level the faster the expansion.

Nearly all UK regions saw a continued recovery in business activity in March, the only exception being the North East (index at 50.0) where output stagnated after rising in February. The South West and Yorkshire & Humber (both 64.3) were joint-best-performing areas for business activity growth, both registering near-record highs, followed closely by London (63.5). Against the general trend, Northern Ireland* (56.3 from 57.8 in February) and Wales (58.0 from 60.7) both recorded slower rates of expansion.

Demand

March's regional data showed a rise in new business everywhere except the North East. Rates of growth tended to remain strong despite easing from the previous month. Only the South West (ranked third overall) and Scotland (eighth) recorded faster increases in new work. Still, out in front was London, which topped the rankings for new business growth for the fifth month in a row.

Prices

Escalating cost pressures were widely seen in March, with ten out of the 12 monitored regions recording faster increases in firms' input prices. Northern Ireland posted the highest rate of input cost inflation (as well as the greatest acceleration since February), followed by the North East and East Midlands. London saw the slowest, with its rate of input price inflation ticking down slightly from a record high in February.

March saw the widespread pass-through of higher costs by businesses, with selling prices rising sharply across the board. Moreover, in ten out the 12 areas monitored by the survey, the rate of inflation of average charges for goods and services reached a record high. Northern Ireland was one of the exceptions alongside Wales, although the former still topped the rankings ahead of Yorkshire & Humber.

Capacity

All 12 monitored regions and nations recorded a rise in employment in March, the eleventh month in a row in which this has been the case. London once again posted the steepest overall growth, with the South West moving into second place having seen a rapid acceleration in job creation from the previous month. The North East saw the slowest rise in workforce numbers, and one that was only modest overall.

Reflective of the trends in inflows of new business, most areas recorded slower increases in backlogs of work in March. That said, in the case of Northern Ireland, which continued to top the rankings, the rate of accumulation remained strong. The only outright decrease in work-in-hand was that signalled by firms operating in the North East, marking a third decline in as many months for the region.

Outlook

Businesses across the UK generally remained optimistic about the outlook for activity in the year ahead during March. However, in all cases, expectations eased from the previous month. The sharpest decline was in Northern Ireland, which also recorded the lowest overall degree of optimism. Businesses in Yorkshire & Humber were the most upbeat, followed by those in the South East.

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