Output and new business growth reach four-month highs

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 52.4 in September to 53.8 in October, signalling a solid expansion in output that was the fastest since June.

Firms in the region reported that a sharper uplift in new business drove the rise in activity.

October survey data pointed to a further rise in the volume of incoming new business at London private sector firms, following a renewed uplift in September. Furthermore, the rate of growth quickened and was solid, with companies relating the upturn to acquiring new customers and launching new products.

Growth in the capital continued to oppose the national trend, where new work intakes decreased for the fourth month in a row. The West Midlands was the only other monitored region to record an expansion.

Despite stronger demand conditions, firms in the capital signalled a drop in confidence towards the year-ahead outlook in October. Though output expectations were strongly positive overall, the respective index fell to its lowest point in 2023 so far.

Sales initiatives, new products and strong project pipelines all supported optimism during October. On the other hand, some firms expressed pessimism due to tighter financial conditions and large stock holdings at clients.

The start of the fourth quarter saw a second straight monthly decrease in employment across London, after growth was recorded in the first eight months of the year. Adjusted for seasonality, the Employment Index dropped further below the neutral 50.0 mark, indicating a solid reduction in staffing and the most marked since January 2021. The decline was also faster than the UK average.

While some firms reported new hiring activity to cope with demand, there were several reports of redundancies linked to cost considerations.

As has been the case since July, London companies were able to deplete their work-in-hand over the course of October. That said, with some panellists mentioning that rising new order volumes had impeded work on backlogs, the overall pace of reduction softened to the slowest in this sequence and was only slight. The drop was also the smallest recorded out of the 12 monitored UK regions.

The latest survey data provided further signs of cost inflation easing in the capital. Adjusted for seasonal factors, the Input Prices Index dipped to its lowest level since April 2021 in October, albeit signalling a sharp rise in costs that was rarely matched in pre-pandemic times.

Following recent trends, surveyed companies highlighted wage pressures as the main driver of higher costs, with some respondents also mentioning increased supplier charges amid item shortages.

The rate of output price inflation continued to defy the expected trend set by the softening cost environment in October. Rising for the second successive month, the seasonally adjusted Prices Charged Index pointed to the sharpest increase in charges at London companies since July. Anecdotal evidence signalled that firms looked to pass on previously absorbed costs to customers and improve their margins after a period of severe inflation.

Catherine van Weenen, NatWest London and the South East Regional Board, said, “The latest PMI findings show that the London economy remains on a strong footing.

“Despite challenging economic conditions across the UK, businesses in the capital saw resilient customer and sales growth in October. Subsequently, London was the only UK area to register a solid increase in activity, compared with only mild expansions in the West Midlands and the South West, and declines elsewhere.

“That said, other indicators were more downbeat about the city’s prospects. Employment numbers fell for the second month running, and to the greatest degree since January 2021. Similarly, expectations for future activity weakened to a ten-month low as firms grow wary of the possible impact of tighter financial conditions on spending over the coming year.”