Business activity rebounds sharply

By Ged Henderson

10 Aug 2020

Business conditions improved across the North West private sector in July with manufacturing leading the way.

The latest UK regional PMI data from NatWest, published today, shows a steep rebound in activity following the record downturn caused by the Covid-19 pandemic.

The headline North 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 – registered 57.4 in July, up from June's 48.4.

This was the first reading above the 50.0 no-change mark since February, indicating a further marked improvement from a record low of 19.7 in April as businesses continued to resume operations.

The rise in business activity, which was led by especially strong growth in manufacturing output, was the steepest recorded since January 2018 and fractionally quicker than the UK average.

The seasonally adjusted New Business Index continued its sharp ascent in July, climbing further from April's record low and finally registering in growth territory for the first time since before the Covid-19 outbreak in March.

The picture was consistent with that for the UK as a whole, with local businesses commenting on the impact of the wider reopening of the economy.

Hopes of a recovery in activity continued to broaden across the North West private sector in July, with business confidence in the region picking up for the fourth month in a row to the highest since January. The degree of optimism was stronger than the national average.

By sector, local manufacturing firms remained more upbeat about the year-ahead outlook than their services counterparts.

Latest data showed a further though fractionally slower decline in employment across the North West private sector in July.

With activity often still down on pre-Covid levels, firms reported redundancies and the non-replacement of leavers amid efforts to control costs.

The use of the government furlough scheme continued to help curb overall job losses, however, with the decline in payroll numbers in the North West remaining slower than the UK average.

Despite cutting workforce numbers during the month, firms in the North West had more than sufficient capacity to meet demand, completing orders at a faster rate than they received them.

That said, with inflows of new work starting to pick up, the rate of backlog depletion eased further from April’s record to the weakest for six months.

Input prices faced by firms in the North West rose at a faster rate in July, following only a fractional increase in June and back-to-back declines in the two months prior to that.

An uptick in fuel prices was a factor, according to reports from surveyed firms. That said, the rate of cost inflation remained comfortably below the series average, reflecting still relatively low demand for materials and subdued wage pressures.

Higher costs in July led firms in the North West to raise their charges for goods and services.

The increase, which was led by a rise in factory gate charges, was only modest overall, but it nevertheless marked a rapid turnaround from the record drop in output prices seen at the height of the crisis in April.

Richard Topliss, who chairs the NatWest North Regional Board, said: “The recovery in the North West private sector is still in its infancy, but the latest data nevertheless showing the regional economy to be making positive progress.

“However, activity remains subdued particularly in the services sector where Covid-19 and associated containment measures continue to disrupt businesses and suppress demand.

“Until now the recovery in the North West has followed a similar course to the rest of the UK, so with renewed lockdown measures in the local area it will be important to see whether the PMI highlights any divergence in activity, employment and business confidence going forward.”

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