Recovery ‘sustained’ but NW confidence falls

Latest North West Business Activity Index from NatWest reveals solid growth and fast job creation but confidence for the coming months is falling. Tony McDonough reports

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Job creation rose quickly in October but confidence among firms is falling

North West firms saw a “sustained” recovery in business activity in October but also faced surging wages and energy prices, new data shows.

According to the latest North West Business Activity Index from NatWest, employment increased at a record pace during the month. Job creation grew at the fastest rate since the survey began in 1997.

The seasonally adjusted index measures the month-on-month change in the combined output of the region’s manufacturing and service sectors. It registered 55.3 in October, up from 54.9 in September.

Moving further above the 50 no-change mark, the index signalled a solid and accelerated rate of growth, albeit one that was slower than the UK average (57.8). Inflows of new business at firms in the North West regained momentum at the start of the fourth quarter.

The rate of growth was sharp and the quickest seen for three months, although it remained well below the highs seen during the summer. The upturn – which slightly exceeded the national average – was driven by the service sector, with local manufacturers observing a subdued trend in new orders. 

Latest data showed a further loss of confidence among firms in the North West towards growth prospects in the year ahead. After reaching a record high in May, expectations have now fallen in four of the past five months to the lowest since January.

Only firms in the North East, Scotland and Northern Ireland are less upbeat about the outlook. A number of firms predicted that activity levels would normalise in the coming months after a post-lockdown surge.

Businesses commented on efforts to increase staffing capacity in line with growing demand, with some noting the lifting of recruitment freezes. The rise in employment was broad-based by sector.

The cost of energy, labour, transportation and raw materials all increased, according to reports from surveyed businesses. Underlying data indicated that the manufacturing sector continued to be hit hardest by rising operating expenses. 

October saw many businesses in the North West raise their output prices, as they looked to pass on the burden of higher costs to customers. Although easing from the previous survey period, the rate of inflation remained among the fastest seen in the series history and quicker than the average across the UK as a whole.

Richard Topliss, chairman of NatWest north regional board, said: “There were a number of key takeaways from October’s survey results, but unfortunately not all of them were welcome.

“Starting with the positives, we saw business activity levels across the North West continuing to recover at a solid rate, making nine consecutive months of growth.However, the tightness in the labour market is adding to inflationary pressures from rising raw material, transportation and energy costs.

“This is resulting in an unprecedented increase in business costs. Growth expectations have waned, which is partly to be expected as activity levels continue to normalise following the troughs and peaks over the past year-and-a-half, but the decline in optimism in the region has been stark.”

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