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 – crept up from 58.2 in December to 58.3 in January, the highest for eight months and indicative of a marked expansion in output.
Business activity mainly grew due to improvements in new orders from domestic and foreign customers, according to survey panellists.
Although the number of UK regions exhibiting growth rose from seven to ten, London was still easily the fastest-growing area in January.
London-based companies recorded an increase in new orders for the fifth month in a row in January. As was the case in December, the pace of growth was marked, despite easing marginally. Businesses often reported winning new clients and seeing greater demand from overseas customers.
London remained the top-performing region of the UK in January, supporting a further increase in sales at the national level.
Firms in the capital remained strongly upbeat about future business activity at the beginning of the year. Although the degree of confidence eased slightly from December, it was still among the strongest recorded since early-2022. Where output forecasts were positive, panellists often cited increased investment and anticipated improvements in sales and economic conditions.
The sharp and sustained rise in sales led to a solid increase in workforce numbers at London-based firms during January. The upturn in staffing was the third seen in a row and the fastest since July 2023.
Some respondents took on additional workers as part of growth plans, while others commented on the increased availability of staff to fill open positions. However, there were some mentions of redundancies.
After registering the first increase for six months in December, companies saw a sustained uplift in the level of outstanding work in the first month of 2024. Anecdotal evidence signalled that this was mainly due to a sharp increase in new order volumes. The pace of backlog accumulation picked up slightly but remained modest overall.
The average rise in input prices across London edged down slightly to the weakest pace since April 2021 in January. Nonetheless, the increase was still sharper than the series trend, and in part driven by greater supply chain constraints arising from disruption to shipping lines in the Red Sea. Greater salary costs were also widely mentioned by panellists, while some cited an uptick in electricity prices.
Notably, the rate of input price inflation in London was still the highest recorded out of the 12 monitored UK regions.
Higher input costs continued to feed through to an increase in output charges. The latest uplift in charges was sharp, despite slowing from December to the second-softest since August 2021 (after August 2023). Charge inflation across the UK likewise softened and was less marked than in London. In fact, only Scotland posted a sharper rise in selling prices than in the capital.
Catherine van Weenen, NatWest London and the South East Regional Board, said, “A further sharp uplift in demand across the capital spurred a solid increase in employment during January, suggesting that firms are happier to boost staff numbers despite salary pressures remaining steep.
“The upturn also followed another strong round of sentiment data, with 55% of surveyed businesses signalling expectations of output growth in the year ahead. London firms broadly expect strong demand in 2024 and are willing to invest in their own products, staffing and capital to achieve a good performance.
“Headwinds from inflation are still worth considering, especially as input cost pressures are falling at only a snail’s pace and could yet be aggravated by global supply chains.”