South East companies signalled a desirable combination of receding price pressures and sustained economic growth in May, NatWest PMI data showed.
Despite falling from 55.0 in April to 54.6, the headline NatWest South East PMI 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 — pointed to a marked rate of expansion that was the second-strongest in almost one year.
Positive client interest and buoyant demand conditions were highlighted as the main reasons for the latest upturn in private sector output. Moreover, the local rate of growth was the second-best of the 12 monitored UK regions and nations.
Private sector companies in the South East noted a substantial increase in new business during May. The upturn was attributed by survey participants to advertising, buoyant demand conditions and reduced hesitancy among clients to place new orders.
Despite easing from April, the overall rate of expansion in sales was the second-best in over a year. Growth of local new orders was the second-strongest of the 12 monitored UK regions and nations, behind London.
Firms in the South East forecast output growth over the course of the coming 12 months. New product releases, marketing initiatives, brand recognition, positive demand trends, workforce investment and predictions of softer cost pressures underpinned optimism.
Little-changed from April, the overall level of positive sentiment was among the highest seen over the past year. Regionally, the South East came third in the rankings for business confidence.
The latest results also pointed to little-change to employment levels across the South East, following a renewed increase in April. This was signalled by the respective seasonally adjusted index slipping close to the 50.0 threshold.
Anecdotal evidence showed that job creation at firms that sought to fill vacant positions and meet rising demand was offset by resignations, redundancies, retirements and cost-cutting efforts elsewhere. The local trend for jobs compared unfavourably with employment growth at the national level.
Input costs facing South East companies rose further in May, stretching the current sequence of monthly increases to three years. Despite being sharp and above its long-run average, the rate of inflation softened to a 27-month low.
Upward cost pressures reportedly stemmed from higher salary bills amid the cost-of-living crisis as well as greater expenses on food and insurance. Concurrently, panellists noted lower energy, transportation and raw material prices.
Prices charged for South East goods and services continued to rise midway through the second quarter, but the overall rate of inflation softened since April.
Although indicative of a sharp rate of inflation, the respective seasonally adjusted index was at its second-lowest level in 21 months.
Some firms linked hikes to recent increases in operating expenses, while others offered discounts due to competitive conditions and retreating cost pressures. The South East topped the regional rankings for output charge inflation in May.
As was the case in April, South East companies signalled higher volumes of unfinished business in May. However, the rate of accumulation softened from that seen in the prior month and was only marginal.
Where growth was reported, panel members cited input and staff shortages. Companies that indicated a fall mentioned reduced pressure on supply chains and expanded capacities. The South East was one of only two regions to record growth of backlogs, alongside London.
Catherine van Weenen, NatWest London and the South East regional board, said: “The rise in output levels recorded in the South East PMI report reflected surging new business, as companies geared up to meet the growing demands of their clientele.
“The data also highlighted reduced inflationary pressures locally, offering a respite to businesses and consumers alike.
“Such a retreat could help to create a stable economic environment, enabling firms to plan and invest with greater confidence.
“It could also give a potential boost to consumer purchasing power, ultimately contributing to enhanced economic stability and improved living standards.
“While the job market was stagnant, the overall picture is one of optimism, emphasising the region’s ability to adapt and thrive in a dynamic economic landscape.”