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 – posted 56.0 in June, from 58.5 in May, to signal another sharp expansion in business activity at the end of the first half of the year.
Survey panellists related higher output to a further uplift in sales, although greater economic uncertainty and rising interest rates meant that underlying demand growth softened markedly.
As has been the case throughout 2023 so far, London private sector businesses saw an increase in their new work intakes during June. The pace of growth was sharp and much stronger than the trend seen across the UK as a whole. However, it softened markedly from the previous survey period and was the slowest since January. Some firms indicated that rising interest rates and associated economic uncertainty led to a slowdown in client demand.
London firms were slightly less confident in the outlook for business activity at the end of the second quarter. The Future Activity Index slipped from its recent high in May and was the lowest seen in 2023 to date. That said, with 49% of businesses expecting an increase in output over the next 12 months compared to 13% predicting a decline, the outlook remained broadly positive and stronger than seen throughout most of last year.
London-based companies indicated a stronger round of hiring at the end of the second quarter of the year, as the latest data pointed to the sharpest uptick in employment for ten months. Panellists often stated that rising new business, higher unfinished work and the improved availability of staff in some sectors had encouraged them to make additions to staffing.
Notably, London moved to the top of the regional rankings for employment in June, and compared with a more modest rise in staffing at the national level.
Demand strength in the capital continued to drive an increase in backlogs of work during June, the fifth time in as many months where a rise has been recorded. The latest accumulation of unfinished orders was solid, despite slowing to the least marked pace in the five-month period. By contrast, backlogs across the UK fell for the second straight month and at a quicker pace than in May.
Companies in London struggled with a further sharp uplift in costs over June, fuelled by rapid wage inflation and rising interest rates, anecdotal evidence showed. Despite easing from the previous month to the lowest in two years, the seasonally adjusted Input Prices Index remained historically high with nearly 35% of respondents noting an increase in costs.
Of the 12 monitored UK areas, London again posted the fastest rise in input prices during June, continuing the trend that began in February.
Businesses continued to report a marked increase in selling charges at the end of the first half of the year, in a sustained bid to pass higher costs through to customers. Over 22% of firms registered a rise in June, against 6% that noted a decrease. The overall rate of charge inflation eased to the softest since March, however, and was one of the weakest seen in the past two years.
The South East posted the fastest uptick in output charges of the monitored UK areas in June, followed closely by London. At the national level, charge inflation slowed to the softest recorded since April 2021.
Sources: NatWest, S&P Global PMI
Catherine van Weenen, NatWest London and the South East Regional Board said, “London remained the standout region of the UK economy in June with the sharpest expansions of both activity and new business of the 12 monitored areas, yet the capital was not immune to a slowdown in growth.
“While continuing to signal a sharp upturn overall, new business rose at a much slower pace than in May, as some firms cited that economic uncertainty and rising interest rates had dampened client spending.
“Wage pressures also continued to take their toll, with cost inflation remaining marked as a result and businesses opting to raise their charges sharply. Nevertheless, higher new orders, workload pressures and improved candidate availability allowed firms to increase their headcounts at the fastest rate since August last year.”