Latest survey data indicated that South West private sector businesses remained firmly in expansion mode in June.

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 – remained well above the neutral 50.0 level at 61.6 in June, to signal a fourth successive monthly expansion in output.

Although the reading was down from May's survey record of 64.4, and below the UK-wide trend (62.2), the figure was still among the highest seen in the survey's history and was consistent with a robust pace of expansion.

New business placed with South West private sector firms rose for the fourth month running in June. Although the rate of expansion moderated from May's recent peak, it was nonetheless the second-sharpest recorded since August 2014.

Panel members indicated that the roll-back of COVID-19 restrictions and improved market confidence had boosted sales, with greater tourism in the region also cited by firms due to ongoing international travel restrictions. New orders also rose at a softer rate at the national level, though growth remained stronger than that seen in the South West.

Businesses in the South West continued to express strong optimism towards the year ahead outlook for output in June. The level of positive sentiment picked up slightly from May and was slightly higher than that seen across the UK as a whole. The end of the pandemic was a key factor that could boost activity, along with the further release of pent up customer demand and new projects, according to panellists.

Latest survey data signalled a further acceleration in the rate of job creation across the South West private sector in June. The latest increase in employment was the steepest seen since January 2014 and rapid overall. That said, growth remained slightly softer than the UK average. When explaining the latest expansion in payroll numbers, companies often commented on rising customer demand and increased business requirements.

The level of work-in-hand (but not yet completed) at South West private sector companies rose for the third successive month in June. Although the rate of accumulation eased from May’s record, it was nonetheless the second-quickest seen since the series began in November 1999. Companies frequently mentioned that limited capacity, supply chain disruption and rising order inflows led to the latest rise in backlogs of work. Across the UK as a whole, outstanding workloads rose at a record pace, and one that was quicker than that seen in the South West.

Adjusted for seasonal factors, the Input Prices Index signalled a substantial increase in costs faced by South West private sector firms in June. Moreover, the rate of inflation was the quickest seen since the survey began in January 1997, and outpaced the national trend. Reports from panel members indicated that higher cost burdens stemmed from increased prices for raw materials, fuel and transportation (particularly if shipping overseas), as well as greater staff costs.

Increased cost pressures led to a further rise in prices charged by South West private sector companies at the end of the second quarter. The rate of increase was the sharpest seen since the series began in November 1999, but also faster than the UK-wide average. Firms frequently mentioned hiking their charges due to the pass-through of greater input costs to clients and efforts to maintain margins.

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Paul Edwards, chair of the NatWest South West Regional Board, said: “Companies in the South West signalled a further sharp increase in business activity during June, despite momentum softening slightly since May, to indicate that the region continued to recover strongly from COVID-19.

"The easing of pandemic-related restrictions and return to more normal business conditions helped to lift sales and activity again in June, with firms also commenting that more domestic tourism had also helped to boost order books.

"The recent rebound in economic activity has been accompanied by ongoing supply chain disruption, however, which has led to increased strain on capacity and fed through to steeper increases in costs. The latest survey showed by input prices and output charges rising at record rates, as firms try and maintain their operating margins."