The headline NatWest London PMI 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 – dropped from 58.3 in January to 56.5 in February, its first monthly fall since August 2023.
Nevertheless, the index was still indicative of a robust expansion in activity, which companies mainly linked to a sustained upturn in new business. London remained the strongest-performing region in the UK.
New orders placed at London private sector companies continued to grow midway through the first quarter of 2024, extending the current run of growth to six months. Despite easing markedly since January, the rate of expansion remained sharp and the quickest observed out of the 12 monitored UK regions.
Improving markets, sales campaigns, greater air freight demand and new customers were cited by surveyed companies where new order growth was recorded.
Consistent with the UK trend, business expectations regarding future activity rose to the highest in exactly two years across the capital in February. Improving confidence was underlined by hopes of stronger sales and returns on long-term business investment, according to panellists. Around 63% of companies forecast output to grow in the next 12 months, much higher than the 10% that predicted a decline.
Improvements in demand and confidence supported a further expansion of workforce numbers at London companies in February. The latest increase was moderate and slower than that recorded in January, but nonetheless was the second-fastest for seven months. Moreover, it compared with only a fractional uptick in employment across the whole of the UK.
London businesses signalled a greater ability to work through their existing orders, following two successive months in which backlogs of work had accumulated. That said, February data indicated a fractional rise overall, and the only uptick seen nationwide for the third month running.
The latest survey data signalled a renewed uplift in inflationary pressures across the London private sector economy. Input prices rose at their quickest rate for six months, after reaching a 33-month low in January, and remained sharp against the historical trend. Once again, the pace was the fastest observed out of the 12 monitored UK areas.
According to survey comments, wages were the primary driver of higher input costs, which some firms in turn attributed to increased hiring. Rising electricity and supplier prices were also mentioned.
London firms opted to pass on the quicker rate of input price inflation to their clients during February, as survey data pointed to a sharp and accelerated increase in prices charged. The rate of inflation stayed considerably higher than the long-run trend, and was the strongest recorded nationwide.
Sebastian Burnside, NatWest Chief Economist, said, “These latest PMI figures build on the positive start to the year we reported last month, with business activity rising in the majority of nations and regions in February. Encouragingly, growth in most cases is being supported by increasing levels of new business, indicating a pick-up in underlying demand and hinting that the upturn as has legs.
“Business confidence has generally perked up and in many areas has improved considerably since the start of the year, in a further boost to the outlook.
“Price pressures generally increased across the UK in February, with businesses reporting a combination of growing wage demands and costs increases related to the Red Sea shipping disruption. Inflation indicators remain particularly high in London, but they have picked up again in most other areas, too.
“With falling backlogs of work suggesting a lack on strain on business capacity, and wage pressures remaining persistently high, we’re still seeing some caution towards hiring. The UK labour market as a whole is treading water amid mixed sub-national trends in employment.”
