What NatWest report says about private sector in south west

Nonetheless, firms frequently mentioned that the ongoing national lockdown continued to limit business operations and customer demand.

Expectations regarding the 12-month business outlook improved to a record high, however, amid hopes that activity and sales will rebound once the pandemic ends, while employment moved closer to stabilisation.

The headline NatWest South West Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – increased from 38.5 in January to 46.0 in February, to signal a further reduction in output across the region.

Though solid and quicker than the UK-wide trend, the rate of decline was much weaker than that seen at the start of the year.

Adjusted for seasonal factors, the New Business Index signalled a fifth successive monthly reduction in new work placed with South West private sector firms in February.

Companies often mentioned that the national lockdown and reduced client spending had driven the latest fall in sales.

That said, the rate of contraction eased notably from that seen at the start of the year and was mild overall. A similar trend was observed at the national level, where new orders fell only slightly.

Business confidence regarding the 12-month outlook for output rebounded in February amid hopes of an end to the pandemic.

Notably, the degree of positive sentiment was the strongest recorded since the series began in July 2012. A number of firms anticipate activity levels to bounce back due to the release of pent-up customer demand once restrictions are eased, but also commented on the launch of new products. Expectations for the year-ahead also improved to a record high across the UK as a whole.

Although private sector employment remained on a downward trend across the South West in February, the rate of job shedding eased notably since the start of the year. The rate of decline was the slowest seen over the current 12-month period of reduction and only marginal. Where lower workforce numbers were reported, it was generally linked to efforts to cut costs and workers placed on furlough. Across the UK as a whole, staffing levels also fell only slightly.

The amount of outstanding business at South West private sector companies fell in February, thereby stretching the current period of decline to 28 months. The rate of backlog depletion quickened since January and was solid overall. Anecdotal evidence suggested that subdued sales had enabled firms to reduce the level of work-in-hand (but not yet completed).

Unfinished business fell at a similarly strong pace across the UK as a whole.

February data revealed a sharper rise in cost burdens faced by South West private sector firms. Notably, the rate of inflation was the second-steepest seen over the past two years (after December 2020). Greater cost burdens were often attributed to increased raw material and transport costs.

Private sector businesses in the South West signalled a sharp and accelerated increase in output charges midway through the first quarter. The latest rise in selling prices was the quickest seen for 12 months and solid overall.

When explaining the upturn in charges, firms frequently mentioned the partial pass-through of higher input costs to clients in order to ease pressure on operating margins.

Paul Edwards, Chair, NatWest South West Regional Board, said: “After falling sharply in January when the third national lockdown was introduced, businesses across the South West noted a much softer fall in output in February.

"However, the region still underperformed when compared nationally, as the UK as a whole saw only a marginal drop in activity in the second month of 2021.

"More positively, expectations that the pandemic will be brought under control and customer demand will rebound pushed up business confidence regarding the year-ahead to a record high."