Finance

South West business activity rises but Covid uncertainty remains


Business activity among South West private sector firms has continued to rise following the easing of Covid restrictions but uncertainty remains around the pandemic, new research suggest.

The 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 – slipped from 54.7 in August to 54.3 in September.

There was a much slower expansion in new work received by the region’s firms last month – the slowest seen since sales returned to growth in March.

While some companies mentioned that stronger customer confidence had supported a further rise in new work, others said clients were reluctant to commit to new projects and that higher selling prices had also dampened sales.

Out of the 12 UK regions monitored by the survey, only the North East registered a slower rise in new business than the South West.

However, confidence towards the 12-month business outlook remained historically strong among the region’s companies. This is despite the overall degree of optimism slipping from August. Firms generally anticipate a further recovery in economic conditions from the pandemic, greater investment and increased travel to boost activity levels over the next year.

South West private sector firms are also continuing to hire staff – often to help process new and future orders. The rate of job creation was the softest seen since April, but remained marked overall. The upturn was slightly softer than that seen across the UK as a whole, however.

The seasonally adjusted Outstanding Business Index posted above the neutral 50.0 level in September to signal a sustained rise in unfinished workloads. Though solid, the rate of accumulation was the slowest seen over the current six-month period of expansion. The upturn was also not as quick as that seen at the national level.

A number of monitored firms indicated that backlogs of work had risen as capacity levels continued to recover from the pandemic.

Higher costs for staff, raw materials and transportation all drove a further increases in overall cost burdens faced by South West firms. The rate of inflation was rapid and among the fastest recorded by the survey, despite easing for the second month in a row. However, the increase was slightly softer than the UK-wide trend.

South West private sector firms increased their output charges for the ninth month running in September. The rate of inflation quickened since August and was the third-sharpest since the series began in late-1999. According to anecdotal evidence, companies raised their selling prices due to the pass-through of higher costs to clients.

An accelerated and substantial increase in output charges was also seen across the UK as a whole, with the rate of inflation exceeding that seen in the South West.

Paul Edwards, chair of NatWest South West Regional Board, said: “South West private sector activity continued to expand strongly in September as firms reported a further improvement in business conditions following the easing of COVID-19 restrictions.

“However, momentum appeared to fade slightly amid a notable slowdown in new order growth, as firms indicated that sales were dampened by ongoing pandemic-related uncertainty and high selling prices.

“The latest survey indicated that companies raised their selling prices at one of the steepest rates on record due to a further surge in operating expenses and efforts to protect margins.

“At the same time, employment also rose at a slower rate, in part due to difficulties retaining and attracting workers which, combined with material shortages, drove a further increase in backlogs of work.

“Encouragingly, firms remained strongly upbeat that output will expand over the next year amid hopes that the pandemic will be brought fully under control, new investments and forecasts of increased travel.”

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