London business activity growth rebounds to four-month high

Here’s why

Business activity growth in the capital rebounded to a four-month high in September, according to the latest Lloyds Bank Regional Purchasing Managers’ Index (PMI^®).

The London PMI registered 54.1 in September, up from 52.8 in August, representing the fastest rate of growth since May’s high of 55.7. A reading above 50 signifies growth in business activity, whereas a reading below signals contraction.

The Lloyds Bank PMI, or purchasing managers’ index, is the leading economic health-check of UK regions. It is based on responses from manufacturers and services businesses about the amount of goods and services produced during September compared with a month earlier.

New orders rose at a quicker rate than the UK average, driving overall business activity.

Meanwhile, businesses faced climbing input costs, which rose at the fastest rate for seven months due to the weak pound and higher salaries. Firms chose to absorb these higher costs, increasing their selling process only marginally, which placed further pressure on margins.

Alongside this, job creation in the capital cooled in September, with roles being created at a slower pace than the UK average.

Paul Evans, regional director for London at Lloyds Bank Commercial Banking, said: “Firms in London reported a solid rate of output growth in September, equaling the pace across the UK after three months of underperformance. New business also increased at an accelerated rate, outstripping the UK as a whole after falling behind in August.

“That said, employment growth eased to increase pressure on capacity and cause the volume of outstanding business to rise for the seventh successive month. Elsewhere, higher costs pressures drove firms to increase output prices, but at the slowest rate across the UK.

“As we enter the final quarter of 2017, businesses in the consumer goods and hospitality sectors will need to ensure they have the working capital necessary to take advantage of higher demand from events like Black Friday, Christmas and New Year. 

“Last month our Working Capital Index report found that businesses in London have £99.3bn tied up in excess working capital, which includes assets like stock and invoices. Cash that’s tied up in working capital can be released and invested in creating more stock or building capacity to meet higher demand over the festive season.”