Growth was recorded across the South East private sector for the sixth month in a row in May, according to NatWest’s headline Business Activity Index.
The seasonally adjusted index measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – registered at 51.6 in May, down from April’s 11-month high of 54.4.
Where higher activity was recorded, this largely reflected increased order numbers and an improved demand environment. The rise in activity seen locally was slower than the UK average, however.
The level of new business at firms in the South East counties – Buckinghamshire, East Sussex, Hampshire, the Isle of Wight, Kent, Oxfordshire, Berkshire, Surrey and West Sussex – increased marginally in May, thereby stretching the current sequence of expansion to four months.
Survey respondents noted that an increase in customer confidence led to an uplift in order numbers. The South East ranked ahead of only Yorkshire & Humber and the East of England in terms of new business in May.
Average cost burdens faced by South East private sector companies rose again in May, thereby marking four years of consecutive cost increases. The rate of inflation eased notably in May to a six-month low but remained just above the historical average.
May data pointed to a further rise in selling prices set for the provision of South East goods and services. The rate of charge inflation was sharp, picking up to the strongest seen this year so far.
Catherine van Weenen, territory head of commercial mid market at NatWest, said: “The South East region continued to grow midway through the second quarter of the year.
“The increase in output was only modest, but it nevertheless marked a sixth consecutive month of growth. Consumer confidence picked up again in May, driving new business higher.
“Inflationary pressures faced by South East private sector companies remained elevated in May, to which firms responded by sharply raising their fees.
“Rising costs generally stemmed from higher freight costs amid ongoing supply chain disruption and raised raw material and wage costs.”
The headline figure is the Business Activity Index, calculated from a single question that asks for changes in the volume of business activity compared with one month previously. It is a diffusion index, which is the sum of the percentage of ‘higher’ responses and half the
percentage of ‘unchanged’ responses.
It varies between 0 and 100, with a reading above 50 indicating an overall increase in compared to the previous month, and below 50 an overall decrease. The higher above 50, the faster the rate of growth signalled.
Performance in relation to UK
May survey data revealed ongoing job creation at private sector firms across the South East, thereby continuing the trend of jobs growth seen since the start of 2024.
Panellists often noted that they had hired new staff to cope with raised workloads. The increase in payroll numbers was only modest and slightly softer than in April, but faster than the UK average.
The seasonally adjusted Outstanding Business Index posted below the neutral 50.0 mark again in May, to signal one year of declining backlogs of work at South East firms.
That said, the decline was only modest and the softest in the current sequence. Some firms linked the decrease in outstanding business to increased capacity, while others blamed falling new orders. Of the 10 UK areas to post a reduction in backlogs, that seen in the South East was the softest.
Inflated freight, wage and raw material costs were among the drivers of higher input prices mentioned in anecdotal evidence. The local rate of inflation was subdued compared to the UK average, however.
The South East came tenth in the national rankings, only seeing stronger cost inflation than the West Midlands and the North West.
Turning to selling prices, panel members mentioned that they had raised fees in line with inflated overhead costs. The local rise in charges was the quickest of the 12 monitored UK areas.
According to the latest survey data, South East private sector firms were optimistic when asked about their outlook for activity over the coming year.
Despite easing slightly on the month, the degree of positive sentiment remained elevated and exceeded the historical trend.
Moreover, of the 12 monitored UK areas, only the West Midlands expressed greater confidence. Upbeat expectations were underpinned by growth forecasts, accelerated marketing plans and increased investment.
