North West recovery loses momentum

Companies in the North West reported their 10th consecutive month of growth in December, says NatWest, but its latest data shows momentum is slowing. Tony McDonough reports

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Manufacturers are facing an increase in costs and this is hitting growth

 

Firms across the North West reported a slowing of growth in December with manufacturers seeing a “stagnation” in orders, new data shows.

According to the latest NatWest North West Business Activity Index, a seasonally adjusted index that measures the monthly output of the manufacturing and service sectors, rising prices and supply-side constraints are now a major drag on growth.

The index registered 53.1 in December. Although still above the 50 mark that separates growth from contraction, it was down from 57.6 in November to signal a notable loss of growth momentum as the year drew to a close. The region’s slowdown mirrored the trend recorded for the UK as a whole.

It was the 10th consecutive month of growth as firms recovered from multiple COVID lockdowns. However, the NatWest research shows that the rate at which they increased was the weakest in this sequence and slightly below the national average.

Broad stagnation in manufacturing new orders compared with a solid, albeit slower, rise in service sector new business.

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On balance, it showed firms in the North West remained confident of seeing a rise in business activity over the next 12 months. However, reflecting heightened concerns over the direction of the pandemic, the degree of optimism slipped to the lowest since December 2020. 

Manufacturers in the region remained more upbeat about the outlook than their service sector counterparts. The rebound in private sector employment in the North West – observed since last March – continued into the final month of 2021.

The rate of job creation eased to a five-month low, but it remained solid overall and notably quicker than the pre-pandemic historical average. The increase in workforce numbers reflected efforts by local firms to meet rising demand, anecdotal evidence showed.   

Continuing the trend seen since last April, firms in the North West reported a rise in outstanding business (orders received by not yet completed) in December. However, having slowed for the fifth time in the past six months (from a record high in June), the rate of accumulation was only modest and the weakest in the current sequence.

The increase in backlogs was centred on the manufacturing sector, where firms reported the influence of raw material and component shortages. Input costs faced by firms in the North West continued to surge higher in December.

The rate of inflation ticked down from November’s peak but was still the second-fastest in the series history (since 1997). Energy, fuel, raw materials, transport (particularly freight) and wages were all sources of cost inflation, according to anecdotal evidence.  

Richard Topliss, chairman of NatWest north regional board, said: “The emergence of the Omicron variant and slight tightening of restrictions put the brakes on the North West’s economic recovery in December, with the headline index slipping to a 10-month low.

“The flare-up in the pandemic has knocked business confidence, which has in turn taken some of the momentum out of the upturn in the labour market, although rising employment remains one of the main bright spots in the survey data.”

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