South East firms record faster output growth in February

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, picked up from 50.9 in January to 53.0 in February to signal a solid increase in activity at firms across the South East.

As well as marking a third successive rise in output, the latest improvement was the most pronounced since last June and in line with the UK average.

Some firms linked the rise in output to a slight uptick in demand conditions while others noted that they had secured new contracts with clients. Despite gaining pace on the month, the rate of increase was still softer than the historic average.

The seasonally adjusted New Business Index posted above the 50.0 no-change mark to register an increase in new work placed at South East firms. Though only modest, the uptick was the first improvement in eight months.

Survey respondents mentioned a boost in demand conditions and increased customer confidence. That said, the local increase in sales was less pronounced than seen at the overall UK level.

The level of outstanding business at private sector firms across the South East region fell again midway through the first quarter of 2024, thereby stretching the current sequence of decline to nine months.

The rate of depletion picked up to the joint-strongest in six months, and one that was sharp overall. Companies noted that with spare capacity they were able to keep on top of workloads. Of the 12 regions and nations, the South East recorded the fastest backlog depletion in February.

February survey data pointed to another slight workforce expansion among South East firms, thereby marking the second rise in as many months. New hires were brought in to cope with rising output levels, according to panellists. That said, job growth was little changed compared to January and only fractional overall.

Meanwhile, some firms noted that contracts were generally temporary. The local job creation was broadly in line with the UK average, which also slowed on the month.

The seasonally adjusted Input Prices Index remained above the 50.0 no-change mark again in February, to indicate increased cost pressures faced by South East firms. The rate of cost inflation remained sharply elevated and was the most pronounced for six months.

Inflation was a reflection of increased price lists at suppliers, higher freight costs and a rise in worker salaries. South East companies posted a softer rise in input prices than the UK average.

In line with the trend for input costs, there was a rapid and faster rise in the average prices charged for South East goods and services in February. The rate of charge inflation also edged further above the historic average.

Firms commonly associated higher selling prices with the passing through of raised cost pressures to clients. The local rise in output charges was fractionally slower than the UK average.

Private sector firms across the South East became more upbeat toward their year-ahead outlook for output in February. The degree of optimism picked up notably on the month to record a 30-month high.

Growth forecasts, investment plans and increased marketing efforts all reportedly underpinned confidence in February. The overall level of sentiment among South East firms was the strongest of all 12 areas of the UK.

Sebastian Burnside, NatWest chief economist, said: “These latest PMI figures build on the positive start to the year we reported last month, with business activity rising in the majority of nations and regions in February.

“Encouragingly, growth in most cases is being supported by increasing levels of new business, indicating a pick-up in underlying demand and hinting that the upturn has legs.

“Business confidence has generally perked up and in many areas has improved considerably since the start of the year, in a further boost to the outlook.

“Price pressures generally increased across the UK in February, with businesses reporting a combination of growing wage demands and cost increases related to the Red Sea shipping disruption. Inflation indicators remain particularly high in London, but they have picked up again in most other areas, too.

“With falling backlogs of work suggesting a lack of strain on business capacity, and wage pressures remaining persistently high, we’re still seeing some caution towards hiring.

“The UK labour market as a whole is treading water amid mixed sub-national trends in employment.”

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