Business activity in the South West has seen its strongest rise in three months.

The latest regional PMI® data from NatWest showed a strong and accelerated rise in business activity across the South West during October. At 55.1, 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 – rose from 54.3 in September to signal the quickest increase in output since July. That said, growth remained slower than that seen for the UK as a whole.

After easing notably in September, the rate of new order growth at South West private sector firms rebounded in October. The expansion was the steepest seen for three months and solid, albeit not as quick as that seen at the national level. According to anecdotal evidence, stronger demand across new and existing customer bases had lifted sales. However, there were some reports that supply chain issues and uncertainty related to the ongoing pandemic had restricted overall growth of new business.

Although companies in the South West generally anticipate business activity to increase over the next year, the level of positive sentiment weakened for the second month in a row. Overall, the degree of optimism was the lowest since January and weaker than the UK-wide trend. While some businesses anticipate a further recovery from the pandemic, stronger customer demand and planned company expansions to boost activity, others cited concerns over labour shortages, supply chain delays and lingering COVID-19 uncertainty.

Employment at South West private sector firms increased for the eighth month in a row during October. Though solid, the rate of job creation was the softest recorded since March and not as strong as that seen for the UK private sector as a whole.

Higher payroll numbers were often attributed to greater amounts of new work and efforts to expand future capacity. However, some firms noted difficulties recruiting and retaining staff due to tight labour market conditions.

Adjusted for seasonal factors, the Outstanding Business Index remained above the neutral 50.0 level to signal a sustained rise in backlogs of work at the start of the final quarter. That said, the rate of accumulation was the slowest seen in seven months and weaker than the UK-wide average.

Panel members suggested that higher sales and supply constraints had contributed to the latest upturn in unfinished business.

Average input prices faced by South West private sector firms increased for the seventeenth successive month in October. The rate of inflation picked up for the first time since August, and was the sharpest seen since data collection began in January 1997. The upturn in costs was also slightly quicker than that seen at the national level. Companies frequently mentioned that higher costs for staff, energy, fuel and materials had driven up expenses.

As has been the case since the start of 2021, South West private sector firms increased their output charges during October. The rate of inflation accelerated to a three-month high and was rapid overall, albeit not quite as strong as the UK-wide average. Where higher selling prices were recorded, they were generally linked to efforts to pass on increased input costs to clients.

Paul Edwards, chair of the NatWest South West Regional Board, said: “Latest NatWest PMI data showed a stronger increase in business activity across the South West, fuelled by a notable rebound in overall new work. Companies commented on higher sales across both new and existing client bases as business conditions continue to normalise.

"However, the recovery has been accompanied by a rapid upturn in input prices, with greater staff, energy and raw materials costs all driving the steepest increase in operating expenses since the series began nearly 25 years ago.

"There were also reports of difficulties recruiting and retaining staff amid tight labour market conditions, which in turn weighed on employment growth.

"Labour shortages, supplier delays and lingering COVID-19 uncertainty all dampened optimism towards the year ahead, which slipped to a nine-month low, and are likely to limit firms' abilities to expand in the months ahead."