South West output stabilises in January

Business activity across the South West was broadly stable at the start of 2025, following a blip in December when it fell for the first time in ten months.

The latest data showed a slower contraction in sales and a recovery in business confidence, but backlogs and employment decreased further. Meanwhile, inflationary pressures intensified.

The South West Growth Tracker 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 49.7 to 50.2 in January. Registering only fractionally above the neutral level of 50.0, the headline figure highlighted a largely unchanged level of business activity among private sector firms. Some firms suggested that new business gains and tech investment at their units underpinned output growth.

Although new orders placed with private sector companies in the South West decreased for a second straight month in January, the rate of contraction was only slight and aligned with the UK average. Local companies associated the fall in new orders with interest rate and public policy concerns among their clients. However, some panellists indicated sales growth, which they attributed to advertising, tech investment and budget approvals at customers.

Business sentiment recovered from December's two-year low, with a larger proportion of companies in the South West forecasting output growth in the coming 12 months. Ongoing marketing initiatives, efficiency gains and expectations of better demand conditions boosted business optimism in January.

Faye Long, Chair of the NatWest South West Regional Board, said: "The results for January showed tentative signs that December's weakness was just a blip. Local firms saw a slower decline in new orders that was marginal and output volumes stabilised.

“Local firms hiked their fees further, not only due to rising cost burdens at present but also amid future increases in wage costs. The rate of charge inflation was the highest in nearly a year-and-a-half and the strongest of all 12 UK nations and regions. Perhaps, expectations that demand will improve in the coming months encouraged firms to share cost burdens with their clients.

“The Bank of England’s interest rate cut last week means that policy is now less restrictive, with further loosening expected in the year ahead.”

The region ranked fourth in the UK for sales trends, with quicker declines noted in eight other areas monitored. Concurrently, the rise in output seen in the South West was accompanied by growth in London, the North East and Wales.

Private sector employment in the South West decreased for the third month in a row during January. The rate of reduction was marked, though softer than in December.

Local companies signalled another fall in outstanding business levels during January. The pace of depletion was among the quickest in 16 months but slowed from December and was weaker than in most other areas of the UK. Panellists stated that previous efforts to increase capacity, coupled with adverse sales developments more recently, facilitated the clearing of pending workloads.

Firms continued to hike their selling prices in response to rising operating expenses. The rate of charge inflation reached a 20-month high in January and was the steepest of all areas of the UK. Local companies reported the pass-through of current and future increases in freight, material and wage costs to clients.

Input costs likewise rose to a greater degree at the start of 2025, one that was the most pronounced in nine months. Qualitative evidence supplied by panellists in the South West showed greater outlays on cables, energy, drinks, food, insurance premiums, metals and shipping. On this front, the South West came second in the rankings (behind the North East).