Region sees sharpest rise in activity as rules eased

South West businesses experienced a “sharp and accelerated” rise in activity last month, new research has found.

The 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 59.8 in April to signal a third successive monthly increase.

The rate of expansion was the steepest recorded since the survey began in January 1997 – and the upturn in activity in the region was greater than the Uk-wide average.

Companies that registered higher sales generally linked this to easing of lockdown measures, the vaccine rollout and more bookings.

While South West private sector firms generally expect activity to be higher than current levels in 12 months’ time, the overall degree of optimism slipped from April to a four-month low.

However, positivity among businesses remained much stronger than the historical average, with anecdotal evidence indicating that growth forecasts were driven by hopes of an end to the pandemic and restrictions, and further increases in demand.

The rate of job creation accelerated to its quickest for over six years in the South West, but was not quite as strong as the national level.

After rising for the first time in two-and-a-half years in April, outstanding workloads at South West private sector firms increased further in May. According to panel members, higher new orders, supply chain delays and insufficient staff numbers drove increase.

The rate of input cost inflation across the South West also accelerated for the fourth month in a row last month, with the increase in expenses the quickest seen since the start of 2011. Many companies attributed this to raw material prices, often due to low stock levels at vendors, and increased freight costs.

Panellists frequently mentioned hiking their prices in order to pass higher expenses on to clients.

Paul Edwards, chair of the Natwest South West regional board, said: “Private sector firms in the South West registered the sharpest increase in activity since the survey began in 1997 during May, driven by a marked rebound in customer demand as pandemic restrictions eased further and market confidence improved.

“The rapid turnaround in conditions strained operating capacities, however, despite firms adding to their payrolls again in May, as backlogs of work expanded at a record pace. Greater amounts of unfinished work were partly linked to supply chain disruption and supplier shortages, which in turn drove the steepest increase in input costs for over a decade. Higher expenses were generally passed on to customers, with selling prices rising at the quickest rate since the series began over 21 years ago.

“It will be important to monitor the strain on supply chains and costs, as they may limit firms’ operations and weigh on margins in the months ahead.”