Optimism as growth remains positive in May

Business activity growth remains positive and keeps confidence high according to the latest NatWest Growth Tracker Survey.

The survey data signalled a slower increase in business activity across the South West in May. At 51.3, the headline South West Business Activity Index edged down from 51.9 in April, but remained above the crucial 50.0 level to signal an increase in output for the fifth month in a row. The rate of expansion was modest and the softest seen since February.

Higher output was generally linked to company expansion plans, improved marketing strategies and work on previously secured orders. That said, there were also reports that more cautious spending among customers had dampened overall growth.

Private sector companies across the South West continued to highlight challenging demand conditions during May. Notably, overall new business fell for the second month in a row and at a slightly faster rate than in April.

Although new orders fell again in May, companies across the South West expressed greater optimism towards the year ahead. The overall degree of positive sentiment was the highest since last October and stronger than the UK-wide average.

Commenting on the Tracker’s findings, Faye Long, chair, South West Regional Board, said: “The latest growth tracker showed a further increase in business activity across the South West during May, with the region continuing to perform strongly compared to most other areas across the UK.

"However, ongoing uncertainty over US trade tariffs and the wider global economic climate continued to impact demand. Notably, firms saw sales weaken for the second month in a row.

"Combined with sharply rising costs, businesses trimmed their staff numbers again to help reduce expenses and adjust capacity in line with current customer demand. Moreover, the South West saw the steepest increase in costs of all 12 UK regions and nations in May.

"Despite the challenging conditions firms currently face, it was encouraging to see that businesses were able to look ahead with greater optimism. In fact, firms in the South West were among the most upbeat of all 12 UK regions and nations when assessing the one-year outlook for output. Opportunities for growth were linked to forecasts of stronger economic conditions and greater confidence among clients to commit to new projects. New product launches and greater investment are also expected to drive increases in activity over the next year."

The South West still performed strongly compared to the other 11 UK regions and nations in May, with only the East of England and Wales seeing stronger increases in activity. Across the UK as a whole, business activity rose only slightly (index at 50.3), following a modest reduction in April.

The pace of decline in new orders across the South West was broadly similar to that recorded at the UK level in May. The East Midlands recorded the sharpest fall in new business of all 12 monitored UK areas, while Wales was the only area to register an increase.

When comparing business confidence regarding the year ahead, only the East and West Midlands and the North West recorded higher levels of optimism than companies in the South West in May.

Regional data indicated that headcounts fell across 11 of the 12 monitored UK regions and nations, with the South West recording the joint-weakest decline (on a par with the North East). Scotland bucked the wider trend and registered a slight rise in staff numbers.

Lower amounts of incoming new work led to a further drop in outstanding business at South West private sector firms. Though solid, the decline remained softer than that seen at the UK level.

Average input prices faced by private sector companies in the South West continued to rise sharply during May. Moreover, the rate of inflation eased only slightly from April's one-year high and was the steepest seen of all 12 UK regions and nations. Greater staffing costs were cited as a key source of inflationary pressure, though there were also mentions of increased energy and raw material prices.

In order to help protect their margins, businesses hiked their average selling prices again in May. Though sharp, the rate of charge inflation was the slowest seen in six months and in line with the UK-wide trend.