Efficiency gains push output growth in the South West to 25-month high despite job shedding

The NatWest South West Growth Tracker showed a rebound in growth of new business and output during June, but employment continued to fall amid efficiency gains and cost considerations. Not only did input prices and output charges rise further, but also at quicker rates than in May.

Rising from 52.9 in May to 53.9 in June, the headline 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 – indicated a marked rate of expansion.

The upturn was also the strongest in over two years and above the long-run series average. When explaining the increase, panellists cited new business gains and favourable client appetite. The local rise in output was the third-best of the 12 monitored UK regions and nations.

Private sector companies in the South West signalled a seventh successive increase in new business intakes during June. Moreover, the pace of expansion was marked and the strongest for more than two years. According to survey participants, growth stemmed from successful marketing and buoyant customer appetite.

There was a fourth successive fall in employment levels among private sector firms in the South West during June. Equal to May, the rate of job shedding was the joint-quickest in nearly three-and-a-half years. Some firms suggested that efficiency gains allowed them to refrain from replacing voluntary leavers. Others indicated that cost considerations led to dismissals.

Paul Edwards, Chair of the NatWest South West Regional Board, said: "The strongest rise in new orders in over two years put the South West private sector on a firmer footing in June. Optimism also improved, as local companies foresee better market conditions after the general election. Increased advertising, investment and new product releases contributed to a common belief that output levels will be higher in 12 months' time. Despite the boost in business sentiment and sales, employment continued to decline, suggesting that existing capacities were sufficient to accommodate for the upturn in demand. In addition to cost considerations, efficiency gains enabled companies to postpone hiring for now."