The South West private sector continued to expand strongly in April, though the rates of increase in both output and new orders slowed since March, according to the latest NatWest PMI® report. Consequently, firms increased their staffing levels again, though candidate shortages reportedly weighed on the overall rate of job creation. Inflationary pressures remained intense, with a further steep increase in input prices feeding through to a record rise in prices charged by South West private sector firms.

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 – registered 60.3 in April, down from 64.3 in March. The reading signalled a softer, but still sharp increase in business activity that was quicker than the UK-wide trend.

New business placed with South West private sector companies rose for the fourteenth month running in April. Though sharp and well above the series average (53.2), the upturn was the softest seen for three months. Companies indicated that a further improvement in market conditions since the easing of COVID-19 restrictions and new product releases had supported the upturn.

There was also a slowdown in new order growth across the UK as a whole, with the rate of increase weaker than that seen in the South West.

The Future Activity Index posted well above the neutral 50.0 value to signal strong optimism towards the 12-month outlook for output in April. The level of positive sentiment picked up only slightly from March's near-two year low, however. While many firms anticipate a further recovery in economic activity and greater investment in technology and new products, others expressed concerns over rising costs, shortages and global economic uncertainties.

The rate of employment growth across the South West private sector eased for the first time in three months in April. That said, the pace of job creation remained sharp overall and was slightly quicker than the UK-wide trend. According to anecdotal evidence, workforce numbers rose due to increased business requirements and greater client demand. However, candidate shortages reportedly weighed on the overall pace of expansion, as some firms struggled to fill vacancies or replace departed staff.

The level of unfinished business at South West private sector firms rose for the thirteenth month in a row in April. The rate of accumulation picked up from March and, though modest, was the second-quickest seen of all 12 UK regions (after Northern Ireland). Higher amounts of work-in-hand (but not yet completed) were frequently linked to shortages of materials and labour alongside rising intakes of new work.

Across the UK as a whole, backlogs rose only fractionally during April.

The seasonally adjusted Input Prices Index signalled a further increase in operating expenses across the South West private sector, stretching the current period of inflation to 23 months. The rate of growth softened slightly from March, but nonetheless remained among the sharpest seen in the survey history. Where higher cost burdens were reported, companies attributed this to rising prices for a wide range of inputs, notably energy and raw materials, with the Russia-Ukraine war also mentioned as a key driver of inflation.

At the national level, input costs increased at a faster rate and one that outpaced that seen in the South West.

As part of efforts to pass on additional costs burdens to clients, South West private sector firms raised their own selling prices again at the start of the second quarter. Furthermore, the rate of charge inflation quickened from March to post a new series record. Selling prices also increased at an unprecedented rate across the UK as a whole and one that was quicker than seen in the South West. When compared against the other 12 UK regions, only London saw a softer rate of inflation than the South West in April.

Paul Edwards, chair of the NatWest South West Regional Board, said: “The latest NatWest PMI data highlighted a slight softening of growth momentum across the South West private sector, with increased global economic uncertainty, material shortages and rising costs all weighing on the latest expansions of output and new work.

"Nonetheless, the region noted the joint-quickest rise in sales of all 12 UK regions, with more marked slowdowns in demand seen elsewhere.

"Encouragingly, business confidence improved slightly from March's near-two year low, and companies continued to expand their staffing levels.

"However, increased global uncertainty, notably the Russia-Ukraine war and lockdowns in China, combined with sharply rising costs and shortages, means a further slowing of growth momentum is likely."