Businesses in the South West registered sharper increases in business activity, new work and employment at the end of the first quarter as market conditions continued to revive from pandemic-related disruption.

However, price pressures intensified, with a quicker rise in input costs feeding through to an unprecedented increase in output charges. At the same time, concerns over rising costs and shortages of inputs and labour dampened overall business confidence, which slipped to its lowest for nearly two years.

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 59.6 in February to 64.3 in March, to signal the sharpest increase in output since May 2021. The upturn was the joint-strongest seen of all 12 monitored UK regions (on a par with Yorkshire & Humber).

The seasonally adjusted New Business Index pointed to a further improvement in overall new orders received by South West Private sector firms in March. Furthermore, the rate of growth quickened for the third month in a row to reach the strongest since May 2021. Greater intakes of new business were often linked by panellists to stronger customer demand as the impact of the pandemic continued to fade. There were also mentions of new client wins.

In contrast, new order intakes rose at a softer pace across the UK as a whole, and one that was slower than that seen in the South West.

South West private sector businesses generally expect output to expand over the next year, but overall optimism softened in March. Notably, the level of positive sentiment slipped to a near two-year low and was weaker than the UK-wide trend.

While many firms anticipate that activity will continue to recover due to the relaxation of COVID-19 restrictions, there were concerns over rising costs, supply chain disruption and labour shortages.

Latest survey data pointed to a sharp and accelerated rise in staffing levels at South West private sector firms at the end of the first quarter. Furthermore, the rate of job creation was the steepest seen since August 2021. Anecdotal evidence indicated that firms expanded their workforce numbers to meet rising customer demand and due to efforts to fill vacancies.

On a regional basis, only London registered a faster increase in employment than that seen in the South West.

Although the level of work-in-hand (but not yet completed) continued to rise across South West private sector companies in March, the rate of increase slowed for the second successive month. Moreover, the pace of accumulation was the slowest seen since the current period of expansion began a year ago and only marginal. Higher backlogs were often linked to rising sales, but some firms mentioned that higher staff numbers had helped to alleviate some pressure on capacity.

Outstanding business meanwhile increased modestly across the UK as a whole in March, with the rate of growth also easing since February.

Average input costs faced by private sector firms in the South West increased for the twenty-second month in a row in March. Notably, the rate of inflation was the joint-second strongest in the series history (beaten only by November 2021). The upturn was not quite as sharp as that seen at the national level, however.

Panel members indicated a widespread increase in expenses, with energy, fuel, labour, transport and raw materials mentioned in particular.

Adjusted for seasonal factors, the Prices Charged Index pointed to a sustained rise in output charges set by South West private sector companies in March. Furthermore, the rate of inflation was the sharpest seen since the series began in November 1999. Where higher selling prices were reported, companies often linked this to the pass-through of additional costs to customers.

A record rise in output prices was also seen at the national level, and one that was quicker than that seen in the South West.

Paul Edwards, chair of the NatWest South West Regional Board, said: “Business activity across the South West surged at the quickest rate for 10 months in March as the impact of the pandemic continued to fade and customer demand strengthened further.

"Notably, the South West, along with Yorkshire & Humber, posted the sharpest rise in output of all 12 UK regions at the end of the first quarter.

"The recovery was accompanied by further steep increases in costs, however, which led to a record upturn in selling prices.

"Rising expenses, supply chain disruption and labour shortages weighed on business confidence, which fell to a 23-month low."