New business growth in South West slows to 21-month low

PMI® survey data signalled a loss of momentum in the South West private sector economy in February, with new business rising at the slowest rate since May 2013. Output growth moderated, and backlogs declined for the first time since last August. That said, firms continued to expand workforces during the month, and raised their charges at the strongest rate since last June.    

The seasonally adjusted Lloyds Bank Commercial Banking South West Business Activity Index lost the ground gained at the start of the year in February, falling to 54.8 from 58.0 in January. That signalled the weakest rate of expansion since last October, driven by a slower increase in new business. That said, the Index remained above its long-run average of 54.1, and signalled a solid overall rate of growth.     

Data broken down by broad sector signalled that manufacturing output continued to rise at a sharper rate than services activity during February. Moreover, goods output rose at a faster rate during the month, while growth of services activity slowed.

Growth of new business was maintained in February, stretching the current period of expansion to nearly two years. That said, the rate of growth slowed to the weakest since May 2013. 

The weaker increase in new work resulted in a decline in outstanding business for the first time in six months, with both manufacturing and services registering contractions. The overall decline in backlogs occurred despite a further robust round of job creation in the sector. Private sector employment has increased every month since April 2013, and the rate of growth in the latest period was broadly in line with the strong average over this sequence.

February data signalled a stronger rate of input price inflation, following only a marginal increase in average input costs in January. Firms reported the impact of the strong dollar, wage pressures and higher beverage costs. That said, input price inflation remained relatively weak. Meanwhile, output prices rose at the strongest rate since last June.

Commenting on the Lloyds Bank Commercial Banking South West PMI survey, David Beaumont, area director for SME Banking in the South West, Lloyds Bank Commercial banking, said: “The private sector in the South West lost the momentum seen at the start of the year during February, with the overall rate of business activity growth easing back to just above its historic average.  Despite this concern, the labour market still looks healthy, but this will come under threat should growth in activity and new business weaken further.”