Business activity in the South West rebounded in February amid reduced disruption from the COVID-19 pandemic and improved client demand.

At the same time, firms recorded a steeper increase in employment, which helped to limit the build-up of outstanding business.

However, concerns over sharply rising costs and ongoing supply chain disruption weighed on overall business confidence in February.

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, to signal a sharp and accelerated increase in output. The rate of growth was the quickest seen for seven months and was similar to that seen at the national level.

South West private sector firms signalled a further acceleration of new order growth during February. New business expanded at the quickest rate for three months, with a number of panel members commenting on firmer client demand amid an easing of the Omicron wave and associated pandemic restrictions.

A sharper rise in new work was also recorded at the national level in February, and one that was quicker than that seen in the South West.

Although activity rose more quickly in February, optimism towards the 12-month outlook for output weakened since January. That said, the degree of optimism remained robust overall and well above the long-run survey average (66.8). Business expectations also softened slightly at the UK level, but remained above that seen in the South West.

Positive sentiment was often linked to expectations of a strong post-pandemic recovery, but there were concerns over rising costs and strained supply chains.

South West private sector employment rose for the twelfth month in a row in February. The rate of job creation was the sharpest seen since last August and rapid, albeit slightly softer than the UK-wide trend. Companies that added to their payrolls in the latest survey period often mentioned efforts to expand capacity amid rising sales and the filling of vacancies. That said, a number of firms commented on challenges finding suitable staff to fill roles.

Adjusted for seasonal factors, the Outstanding Business Index signalled a sustained increase backlogs of work at South West private sector firms midway through the first quarter. Shortages of staff and materials, alongside rising sales, drove the latest build-up in outstanding business, according to panellists. The rate of accumulation slowed since January and, though solid, was the softest seen for four months. This contrasted with what was seen across the UK as a whole, where unfinished work expanded at a quicker pace.

Average input costs faced by South West private sector firms increased for the twenty-first consecutive month in February. Notably, the rate of inflation quickened to a three-month high and was among the sharpest on record. Input prices also rose rapidly across the UK as a whole, with the rate of increase outpacing that seen in the South West.

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

South West private sector companies looked to pass on some of their additional cost burdens to clients in the form of higher selling prices in February. Output charges have now risen in each of the past 14 months, with the latest increase the sharpest since last October. However, the rate of inflation remained below the national average.

Paul Edwards, chair of the NatWest 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.

"The easing of restrictions and firmer customer demand helped to push activity growth to a seven-month high and drove a sharper rise in sales, suggesting the sector has regained momentum since the slowdown around the turn of the year.

"However, cost pressures intensified, and alongside ongoing supply disruption, this weighed on business confidence. These worries will likely be exacerbated by the Ukraine crisis, and could in turn hamper the recovery in the months ahead."