Concern at rising costs takes shine off recovery

Companies in the South West are continuing to recover from Covid disruption, but many have mounting concerns over cost pressures amid rising inflation and the invasion of Ukraine, new data has revealed.

There was a “sharp and accelerated” expansion of business activity in the region last month, according to the data from Natwest - but concerns over increased costs and ongoing supply chain disruption weighed on overall business confidence.

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 - increased from 54.0 in January to 59.6 in February. The growth rate was the quickest for seven months and similar to tha at national level.

Average input costs faced by South West private sector firms continued to increase in February, while inflation quickened to a three-month high. Input prices also rose across the UK as a whole.

According to the survey, higher costs for energy, fuel, staff and materials pushed up expenses in the latest survey period.

The report said South West companies were passing on some of the extra cost to customers via higher prices. Output charges have now risen in each of the past 14 months, with the latest increase the sharpest since last October. However, the inflation remained below the national average.

On a more positive note, South West private sector firms signalled further new order growth last month, with new business expanding at the quickest rate for three months. Optimism towards the 12-month outlook for output has weakened since January but remained “robust” and above the long-run survey average (66.8), Natwest said.

Businesses also continued to create jobs in the region last month, with South West private sector employment rising for the twelfth month in a row in February. The rate of job creation was the sharpest since last August although slightly softer than the UK trend. A number of firms reported challenges finding suitable staff.

Paul Edwards, chair of Natwest’s South West regional board, said: “Latest Natwest PMI data showed that the South West private sector bounced back strongly in February as the Omicron wave receded.”