Business activity growth picks up in March

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 – rose from 56.5 in February to 57.1 in March, signalling a robust expansion in business activity across the capital.

Output reportedly increased due to stronger demand conditions and rising new order volumes, although the uplift in sales slowed further. London was again the top-performing region of the UK in terms of activity growth.

Following the trend since the beginning of the year, new business received by London-based firms increased at a slower pace in March compared to the previous month. Nevertheless, the upturn was still sharp overall.

Respondents pointed to new clients, project confirmations and higher demand from existing customers. However, some firms indicated that sales were starting to slow amid economic concerns.

London companies stayed confident about the future activity outlook in March. Despite slipping from February’s two-year high, the level of confidence remained stronger than at any time in this period, with 55% of firms expecting output to rise over the next 12 months. Optimism arose from new business pipelines, product releases, technology improvements and planned investment, according to panel members.

Employment numbers fell in London at the end of the first quarter, as the respective seasonally adjusted index dropped fractionally below the 50.0 no-change mark. Qualitative evidence suggested the reduction was mainly due to staff leaving and difficulties finding replacements. That said, other firms were able to add workers amid higher sales.

The slight fall in employment across the capital compared with a sustained (albeit marginal) rise across the UK as a whole.

The level of unfinished business at London private sector companies rose during March, stretching the current sequence of growth to four months. Although the pace of accumulation picked up from February, it was still only marginal. Some panellists commented on higher new work and labour challenges.

Companies situated in London continued to face a relatively strong mark-up in input costs at the end of the first quarter. Higher salaries remained a key factor, with some respondents citing a planned rise in the Minimum and Living Wage. Freight, material and utility cost increases were also mentioned.

Nevertheless, the latest survey data showed the rate of input price inflation falling to its lowest level in almost three years.

Selling prices at London firms rose at a considerable pace during March, despite slowing marginally from that seen in February. Higher charges were mainly attributed to the passthrough of increased salary and freight costs.

As was the case in the prior survey period, London topped the regional rankings for both input and output price inflation in March.

Catherine van Weenen, NatWest London and the South East Regional Board, said, “Output growth quickened in London at the end of the first quarter as new business inflows rose again, keeping the capital at the top of the regional rankings.

“Although the new order growth trend eased, it remained strong and supported higher workloads. However, hiring staff to meet workloads posed a challenge in March, as some companies were unable to replace voluntary leavers amid skills shortages. As a result, employment fell slightly and for the first time since last October.

“Meanwhile, the Input Prices metric took a further downwards step, signalling the slowest increase in total input costs since April 2021. Reports of higher salary costs were still frequent though, particularly amid upcoming Minimum and Living Wage rises. This led many firms to raise their charges, keeping inflation prospects elevated.”