Strong Start to 2022 for Private Sector Firms in the South West

Tuesday 15th February 2022

NatWest South West Business Activity Index revealed a continuing increase in output expansion during January, following an 11th successive monthly increase in new orders. Business Confidence regarding the one-year outlook for output across the South West also improved in January. For more details relating to this subject please read the bulletin below which was issued by Insider Media today.

Roger Mundy, Managing Director Beardsley Theobalds, 15th February 2022

 

Strong Start to 2022 in South West - Report

The health of the South West private sector continued to strengthen at the start of 2022, according to a new report, with ongoing improvements in demand supporting faster increases in new orders and output. But shortages of inputs and labour led to a steeper rise in backlogs of work, while cost pressures remained historically sharp.

At 54.0 in January, the headline NatWest South West Business Activity Index rose from December's nine-month low of 52.3 and pointed to a solid rate of output expansion. Though softer than the average seen for 2021 (54.5), the upturn was broadly in line with the UK-wide trend (54.2).

January data pointed to an 11th successive monthly increase in new orders at South West private sector businesses. The rate of growth quickened from December and was sharp overall. That said, the upturn was slower than that seen on average across the UK.

Reports from panel members indicated that a further recovery from the pandemic, looser Covid-19 restrictions and rising demand across both domestic and external client bases had boosted sales.

Business confidence regarding the one-year outlook for output across the South West improved in January. Expectations of reduced Covid-19 cases and the return to more normal business conditions is anticipated to support output growth over the course of 2022. Furthermore, the overall degree of positive sentiment reached its highest for five months.

At the UK level, optimism towards the business outlook also strengthened at the start of the year, and was slightly above that seen in the South West.

As has been the case since March 2021, South West private sector employment increased during January. The rate of job creation eased slightly since December, but remained much quicker than the series average and sharp overall. Rising staffing levels were generally attributed by panel members to increased client demand and the need to expand capacity. However, there were also reports of difficulties recruiting suitably skilled staff and retaining current workers.

Higher sales, material and staff shortages, and worker absenteeism due to Covid-19 illness led to a further build-up of backlogged work at private sector firms in the South West. Notably, the rate of accumulation was the steepest seen for six months and outpaced the UK-wide average. Outstanding business has now risen in each of the past 10 months.

Paul Edwards, chair of the NatWest South West Regional Board, said: "The PMI data for January showed that the South West had a strong start to 2022, with firms recording steeper increases in output and new business as the impact of the Omicron wave subsided and customer demand strengthened.

"Companies also expressed greater optimism towards the year-ahead, with confidence regarding future output improving to its highest for five months. However, shortages of materials and staff - partly due to illness from Covid-19 - drove a quicker rise in backlogs of work and pushed up expenses further.

"In order to fill vacancies and help boost capacity, companies across the region continued to ramp up their hiring activity, though there were reports that recruitment plans were constrained by skills shortages and greater competition for workers."