Universal Business Activity Rise In August

August saw business activity rise universally across the UK for the first time in three months, the latest NatWest Regional Growth Tracker showed.

The 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.

Key Findings:

• Business activity growth led by Northern Ireland

• Employment rises in ten out of 12 nations and regions

• Rates of input cost and output price inflation slow in most cases

For the first time since May, business activity increased across all 12 nations and regions, up from ten in July. Northern Ireland topped the growth rankings for the third time in the past four months. It was followed closely by the South West. The North East saw the slowest rise in output and was one of just two areas (alongside London) that saw a softer pace of expansion than in July.

Sebastian Burnside, NatWest Chief Economist, commented: "Our latest Growth Tracker report showed business activity rising across all 12 UK nations and regions in August, representing an improvement from the ten that recorded an expansion in July. Renewed upturns were seen in the East Midlands and Wales, although it was Northern Ireland that remained the brightest spot in terms of outright growth."

"Business optimism generally softened in August, following a post-election bounce in growth expectations in most areas in July. Nevertheless, sentiment towards future activity remains positive across the board, which is helping to support labour market conditions."

"Alongside broad-based growth in business activity, it was encouraging to see price pressures ease in most areas, in what will be very welcome news for the Bank of England's policymakers. This will be something to watch going forward as we look to assess the direction of travel of inflation and the timing of further interest rate cuts."

Demand

London led a broad-based increase in new business in August. It marked the first time in 16 months that all 12 nations and regions recorded growth on this front, with the East Midlands seeing a renewed upturn. The softest rise in new work was recorded in the West Midlands, where the latest increase was only marginal and slower than that seen in July.

Outlook

Expectations towards growth prospects remained positive across the board in August, but the degree of optimism weakened in most nations and regions compared to the month before. The greatest loss of confidence was in the North East, which also recorded the weakest overall sentiment. Firms in the South East remained the most upbeat about future activity.

Employment

The strongest rate of job creation in August was recorded again in Northern Ireland, where it reached the fastest since April 2023. The North East also recorded a solid and accelerated increase in employment. In a repeat of the situation in July, the only decreases in workforce numbers were seen in the East Midlands and West Midlands, although in the case of the latter the rate of decline remained marginal.

Capacity

Almost every nation and region once again recorded a reduction in outstanding business (i.e. workloads awaiting completion) in August. As has been the case in three of the past four months, the steepest decrease in backlogs was seen in Wales. Northern Ireland continued to go against the trend and recorded a third straight monthly rise in work-in-hand.

Inflation

Cost pressures generally weakened midway through the third quarter, as highlighted by a slowdown in input cost inflation in nearly all areas. The only exception was Wales, where operating expenses rose at an identical pace to that seen in July. Firms in the South East and West Midlands reported the joint-weakest overall rise in costs, while those in Northern Ireland recorded the strongest.

Average prices charged for goods and services rose across all nations and regions in August, although only in the East Midlands, Scotland and Northern Ireland did the rates of inflation accelerate. They eased everywhere else and most markedly in the South West, although it was there where output prices continued to rise fastest overall.