NatWest UK Regional PMI® - September 2019

NatWest UK Regional PMI® - September 2019

There was a general worsening of economic performance across the UK regions in September, according to the latest NatWest PMI® data, with employment falling in all areas.

Economic Analysis

14 October 2019

The East of England topped for the rankings for business activity growth for the second straight month in September. However, it was the only region to see any notable increase in output. At 52.3, down from 52.4 in August, its Business Activity Index indicated a moderate rate of expansion.

The PMI Business Activity Index is the first fact-based indicator of regional economic health published each month, tracking the monthly change in the output of goods and services across the private sector.

A reading above 50 signals growth, and the further above the 50 level the faster the growth signalled.

Wales (50.2), Yorkshire & Humber and London (both 50.1) each saw output growth slow to negligible rates, while Scotland stagnated (50.0).

The remaining seven monitored areas all recorded contractions in business activity, the most since the aftermath of the EU referendum in July 2016. There were renewed declines in the East Midlands (48.7) and South East (48.4), while rates of contraction accelerated in all other cases except the North East (47.5 from 47.0). For the South West (48.0), West Midlands (47. 3), North West (46.4) and Northern Ireland (43.6), the latest decreases were the steepest for 83, three, 86 and 82 months respectively.

Demand
London was the top-performing region for new business for the third month in a row in September, despite seeing growth ease to a three-month low. Inflows of new work broadly stagnated in both the East of England and East Midlands. A fall was recorded in all remaining areas, however. This included in Northern Ireland and the North West, where rates of decline were the quickest since May 2012 and February 2009 respectively.

Capacity
Capacity pressures were generally low, as highlighted by a broad-based decrease in the volume of outstanding orders. As such, latest data showed a decrease in employment in all 12 monitored regions, the first time this has been the case since the financial crisis. The steepest declines were in the East Midlands and Wales, while Yorkshire & Humber saw only a marginal fall.

Prices
Cost pressures for businesses remained strongest overall in Northern Ireland, despite the rate of input price inflation here ticking down slightly since August. The East Midlands and London remained second and third in the rankings respectively. For the second month in a row, the slowest rise in operating costs was recorded in the West Midlands.

The East Midlands and South West saw the joint-steepest increases in output prices in September. They were followed closely by Northern Ireland and Wales. Only marginal increases were seen in both Scotland and the North West, while there were outright reductions in charges in London and the North East. In the case of the former, it was the first decrease in over three years.

Outlook
The East Midlands replaced Yorkshire & Humber at the top of the rankings for future output expectations in September, with the former seeing business confidence tick up to a four-month high, and the latter seeing it drop to the lowest since March. Northern Ireland saw the steepest month-on-month fall in sentiment, and also recorded the lowest (and only negative) overall expectations.

Sebastian Burnside, NatWest Chief Economist, commented:

“Across the UK only the East of England saw any significant growth in September, though even here the foundations are starting to look shaky as firms in the region reported a broad stagnation in incoming new work for a second consecutive month. The rest of the areas of the UK are either treading water or contracting, which is reflected in a broad-based deterioration in labour market conditions. We have to go right back to the depths of the financial crisis of 2008/9 to see such a widespread decrease in employment.

“Conditions are still particularly difficult in Northern Ireland, where the economy now looks to be firmly in recession. A number of other regions appear to be at risk too, including the North East and South West.”

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