Regional business activity growth was led by London in June, as has been the case throughout the first half of the year, the latest NatWest Regional PMI® survey showed. However, more parts of the UK saw activity fall as the second quarter drew to a close. Price pressures meanwhile eased universally, albeit they remained stubbornly high in some areas.     

The PMI Business Activity Index is the first fact-based indicator of regional economic health published each month, tracking the monthly change in the output of goods and services across the private sector. A reading above 50 signals growth, and the further above the 50 level the faster the expansion signalled. 

Just seven out of the 12 monitored regions and nations recorded growth in business activity in June, the fewest since January. London was once again the best performer but posted its slowest rise in output for three months (index at 56.0). Only Scotland (53.2), Northern Ireland* (52.5) and the East of England (51.8) saw growth accelerate. The steepest drop in activity was in Wales (46.7), which was joined in contraction by the North East (48.3), East Midlands (49.4) and South West (49.5). Output in Yorkshire & Humber was unchanged (50.0).

Demand

There were divergent trends in new business in June, with half of the 12 monitored areas recording growth and the remainder seeing demand decline. London posted the greatest rise in new work, although the rate of expansion slowed noticeably to a five-month low. The North East registered the steepest decline, its most marked since last October, followed by the North West.    

Prices

Rates of input cost inflation eased universally in June. The most marked slowdowns were seen in Wales and Northern Ireland, with the latter recording the weakest overall rate of inflation for the second month running. Cost pressures were stickiest in London where they remained historically elevated, although even here the rate of input price inflation slipped to the lowest for two years.  

Average output prices continued to rise steeply across most parts of the UK in June. Rates of inflation did however slow in all monitored areas, most notably in Northern Ireland which cemented its place at the bottom of the rankings. Companies in the South East recorded the sharpest rise in prices charged for the second month running, ahead of their counterparts in London.    

Capacity 

A rise in employment was recorded in all areas except Wales, where workforce numbers were unchanged following a five-month sequence of job losses. London recorded the steepest rise in staffing levels, its sharpest since August last year, followed by Northern Ireland and the East of England. Last month's leader for job creation, Scotland, moved down to eighth in the rankings. 

Pressure on business capacity continued to ease across swathes of the UK in June, with backlogs of falling in almost all regions and nations. Firms in Wales recorded the quickest rate of depletion, the fastest for more than three years, followed by those in the North East. The only area where capacity came under greater pressure was London, which saw work-in-hand rise for the fifth month running.         

Outlook

Business confidence weakened in the majority of regions and nations in June. The biggest drop in expectations was in the North East, which slipped to the bottom of the rankings. The South East recorded the greatest optimism and was one of the few areas where sentiment improved, along with the South West, East Midlands and North West.   

Sebastian Burnside, NatWest Chief Economist, commented: “As we reach the halfway point in the year, it’s an appropriate time to evaluate the trends we've seen up to this point and those that are developing as we move into the third quarter.   

"Growth so far this year has been led by London, which after a sluggish end to 2022 has recovered strongly and recorded sizeable rises in business activity for the past five months. The capital is beginning to show signs of a loss of momentum, however, which is a pattern we're also seeing in other areas, most notably in Wales, the North East, East Midlands and South West which have all moved into contraction territory in the past couple of months.     

"Only half of the 12 monitored nations and regions saw a rise in new business in June, which, alongside a fall in business confidence in most areas points to a subdued outlook for the near term at least.

"There were some positive takeaways in the latest survey data, including a broad-based easing of price pressures. All areas recorded a slower rise in business costs in June, but in some cases, particularly in London and Scotland, the rates of input price inflation remained historically elevated due in large part to growing wage bills.     

"Tight labour market conditions look likely to persist for the time being, with nearly all regions recording an increase in employment in June, which means underlying price pressures could stay higher for longer too."

*PMI survey coverage in Northern Ireland includes construction and retail, as well as manufacturing and services.