Business activity increased across more than half of the UK’s nations and regions in August, although cost pressures picked up and labour market conditions remained subdued, according to the latest NatWest UK Regional Growth Tracker.
Northern Ireland recorded the strongest growth during the month, with its Business Activity Index rising to 55.5, its best performance for almost two years. London followed with a reading of 54.9.
The Tracker’s Business Activity Index uses a reading above 50.0 to indicate growth, with higher readings signalling a faster rate of expansion.
Activity was unchanged in the West Midlands, where the index stood at 50.0. The North West, North East, East Midlands and Scotland recorded slight falls, with readings of 49.7, 49.6, 49.5 and 48.9 respectively.
FUTURE GROWTH
Sebastian Burnside, NatWest chief economist, said: “It was encouraging to see business activity growth being sustained across most parts of the UK in August, despite a backdrop of renewed inflationary pressures.
“Business expectations towards future output have also continued to recover in the majority of areas, with confidence getting closer to the levels seen at the start of the year before the recent bout of geopolitical uncertainty and volatility in oil markets.
“Higher prices at the fuel pumps in August contributed to quicker increases in input costs in most UK nations and regions, the first time this has been the case since April, but rates of inflation in both costs and output prices remained below the highs seen in the second quarter of the year, perhaps giving policymakers some breathing room to keep interest rates unchanged for now.
“Whilst we’re still only seeing pockets of employment growth across the UK, there are further signs that labour market conditions are at least beginning to steady, with several regions seeing rates of decline in employment either slow or remain broadly unchanged since July.”
DEMAND REMAINS MIXED
New business trends varied across the country, with six of the 12 nations and regions recording growth and six reporting a decline.
London and Yorkshire & Humber jointly recorded the strongest increases in new work, followed by the South West. Scotland remained at the bottom of the rankings, although its rate of decline eased to the weakest for five months.
Cost pressures increased in most areas during August, but rates of input price inflation remained below the highs recorded in the second quarter.
Northern Ireland again experienced the steepest increase in operating expenses, followed by Yorkshire & Humber. Scotland recorded the slowest pace of cost inflation, which was its weakest for six months.
Average prices charged for goods and services also generally rose at faster rates. Output price inflation was unchanged in London and the South West, while the South East recorded a slight fall to a five-month low. Northern Ireland saw the steepest increase in prices charged.
LABOUR MARKET REMAINS SUBDUED
Employment conditions were generally weak, despite growth in some parts of the country. Workforce numbers in Scotland increased for a third consecutive month, while the South West recorded its first rise since April.
Staffing levels fell in the other areas monitored, with Wales recording the sharpest decline.
Outstanding business also decreased broadly across the UK, indicating limited pressure on capacity. Northern Ireland recorded only a marginal fall in backlogs, its weakest decline in the current six-month sequence, while Wales saw a sharp reduction.
Expectations for business activity over the next 12 months improved in most areas. The West Midlands recorded the highest level of optimism, followed by London and the South East. Northern Ireland had the weakest sentiment, although businesses there remained positive overall.
