North West business growth expectations highest in the UK

The headline North West Business Activity Index registered 49.8 in October, down from 52.6 in September, taking it below the 50.0 threshold that separates growth from contraction for the first time so far in 2024.

Reports from surveyed businesses indicated that there were some cases where output was scaled back in line with signs of softer demand, but also some temporary delays to the start of projects.

As was the case with business activity, firms in the North West recorded a decrease in employment in October. The reduction, which was modest, ended a five-month sequence of job creation. A number of surveyed firms mentioned not replacing staff who had left, in part due to cost-saving efforts.

However, firms operating in the North West were strongly optimistic about the year-ahead outlook, with expectations having rebounded from an eight-month low recorded in September.

Sebastian Burnside, NatWest Chief Economist, said:

"The fall in output in October is of course slightly disappointing, but it's important to put the result into context - it followed nine straight months of growth and was only marginal. There's still plenty to be optimistic about, including the fact that business expectations in the region are higher than anywhere else in the UK. Employment, too, has seen a slight setback, but based on just a single month of decline it's too early to draw any firm conclusions about a turning in the labour market. Price increases have settled in around about, or even slightly below, their long-run averages, which after years of high inflation is further encouraging news."

Performance in relation to UK

Business activity continued rising across the UK as a whole, but the rate of growth eased to an 11-month low. Out of the 12 nations and regions monitored, the North West was one of four where output fell.

Inflows of new business rose across the North West private sector for the tenth month running in October. Qualitative evidence provided by surveyed businesses indicated an undercurrent of stronger demand, particularly in the service sector. The rate at which new business increased was solid, although it did ease further from the highs seen mid-year and was below the UK average.

Businesses that predicted a rise in output over the next 12 months cited planned investments, the introduction of new products, lower interest rates and greater marketing efforts. The degree of optimism was in fact the highest among the 12 nations and regions monitored by the survey.

The fall in workforce numbers in the region was consistent with a decrease across the UK as a whole in October. In fact, only Northern Ireland, Scotland, the South West and Yorkshire & Humber saw a rise in employment.

In a sign of a lack of pressure on staffing capacity, firms in the North West continued to complete orders more quickly than they were being received, leading to a twenty-ninth straight monthly decrease in backlogs of work. The rate of depletion was broadly in line with the national average.

Although businesses' input costs continued rising during October, linked in most part to wage increases, the rate of inflation slowed for the second time in three months and was the weakest seen for a year. The pace of increase was also not only below the long-run average, but softer than in the majority of the 11 other nations and regions monitored by the survey.

Higher costs were nevertheless partially passed on to customers via hikes in prices charged for goods and services. The rate of inflation in average output prices was unchanged from the month before and broadly in line with the historical series trend.