Data from the NatWest South East Growth Tracker showed the region ending the year on a stronger footing, having enjoyed greater inflows of new work and accelerated growth in output.
Up slightly from 51.3 in November, the headline South East Business Activity Index posted at 51.9 in December, thereby confirming a full quarter of growth in Q4. Albeit still only slightly above the 50.0 no-change mark, the latest reading was stronger than the average seen in 2025 as a whole.
Where respondents noted a rise in their output, they attributed this to increased requests from clients as well as attempts to complete backlogged orders.
December survey data highlighted a fifth consecutive month of growth in new business placed at South East businesses. The rate of expansion accelerated from November to a solid pace and one that contrasted with the 2025 average trend of decline.
Greater interest from clients, improved demand conditions and an uptick in confidence in the market were among the drivers cited by panellists in their reports.
The volume of outstanding business at South East private sector firms decreased again in December, as has been the case in straight months for just over two-and-a-half years.
While some panellists noted that they were able to make inroads to their backlogs due to being overstaffed, others noted greater efforts to complete orders. Private sector employment in the South East fell for the sixteenth month in a row in December.
The decrease in headcounts reflected a combination of voluntary leavers and restructuring due to elevated staff costs. The rate of job losses was weaker than in November and moderate overall.
Average cost pressures faced by firms based in the South East increased again in December, stretching the trend of inflation that extends back to mid-2020.
Increases to supplier price lists, higher raw material costs and greater wage burdens were all cited in the qualitative part of the survey. Operating expenses rose at the strongest rate since August last year, with the pace of inflation remaining substantial overall.
In response to higher cost burdens, South East companies were more aggressive when it came to pricing their goods and services in December. The rate of selling price inflation was the strongest in three months and sharp overall.
Catherine van Weenen, territory head of commercial mid market at NatWest, said: “The South East private sector expanded at a slightly sharper pace as the year drew to a close, ranking just inside the top third of the 12 UK regions.
“The region also enjoyed some of the strongest inflows of new business seen over 2025. Meanwhile, the outlook for 2026 was bright when put into both regional and historical contexts, but with some softening following the highs of prior months.
“While further evidence of spare capacity emerged as companies continued to clear backlogs and lower headcounts, in both cases rates of reduction were weaker on the month.
“Although cost pressures in the region remained elevated, greater stability in demand conditions allowed firms to be more aggressive in their price setting. Locally, the rate of cost inflation was weaker than the national trend, but that of charges was one of the strongest of the 12 UK regions.”
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 compared to the previous month, and below 50 an overall decrease. The higher above 50, the faster the rate of growth signalled.
Regional profile
Location quotients (see pg 12) can be used to identify clusters of certain types of services and manufacturing businesses – providing unique insight into life and work in that local area.
South East manufacturers are concentrated in electrical & optical, mechanical engineering, and chemicals and plastics. Services businesses are concentrated in computing & IT services, transport & communication, and B2B services.
Performance in relation to the UK
The South East saw stronger growth of activity and new business compared to the national averages. In fact, only the South West, the West Midlands and the capital signalled stronger growth in activity than seen locally.
Companies based in the South East maintained a positive outlook when asked about their expectations for activity over the coming 12 months.
Firms were widely hopeful for improved market conditions and confidence, and expect strong pipelines of work and new product launches to be conducive to growth.
Although the overall level of confidence dropped to its lowest in three months, only London and the West Midlands were more upbeat.
Looking at jobs and capacity, of the 12 monitored UK areas, only the North East, Scotland and Northern Ireland cut employment at softer rates than that seen locally.
Meanwhile, although stronger than the UK average, the rate of backlog depletion was only marginal and the weakest in nearly one-and-a-half years.
On the price front, the latest increase in cost burdens was weaker than the UK average. Of the 12 UK areas, only the South West and Northern Ireland signalled a stronger hike in fees than seen locally.
