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 – rose to its highest level in seven months in December, signalling a marked upturn in output levels across the UK capital.
Activity rose strongly on the back of a sharp and accelerated increase in new orders, both of which were the fastest observed out of the 12 covered regions.
London private sector firms reported strong gains in new business intakes at the end of the year, with the latest data indicating a sharp and accelerated increase in sales.
Adjusted for seasonal factors, the New Business Index climbed to its highest since May, and marked the second-strongest uplift since early-2022.
Moreover, the expansion was easily the sharpest seen out of the 12 monitored UK areas, with just the West Midlands and South West also recording rises.
The net degree of optimism regarding activity in the year ahead rose for the second month running in December, and was the strongest registered since March 2022.
Firms expecting growth in output often linked this to increased sales and the launching of new products. Optimism across the UK improved as well, but remained weaker than in the capital.
Businesses in London saw a rise in employment for the second consecutive month in December, although the increase was again only marginal. Despite reports of higher demand creating greater workloads, firms indicated that cost pressures and a larger focus on automation had stymied the rate of jobs growth.
London was one of only three UK areas to register an uptick in staffing over December, the others being Scotland and Northern Ireland, while employment nationwide dropped for the fourth month running.
The influx of new orders at the end of the year led to a renewed increase in backlogs at London private sector companies. The uplift was the first recorded in six months, albeit modest overall. London was also the only region to see backlogs accumulate. Meanwhile, the decrease at the national level slowed considerably.
Input costs in the London private sector rose at a sharp and fractionally quicker pace in December, as the seasonally adjusted index ticked up to a four-month high. Companies noted that wage rises are keeping price pressures elevated, despite moderations in other expenses.
The stickiness in input cost inflation across the capital mirrors the trend seen nationwide where costs also increased at the fastest rate since August. Notably, London topped the regional rankings, followed by the East Midlands.
Prices charged by London companies continued to rise markedly at the end of 2023. Although the pace of inflation softened from November, it was broadly in line with the average seen over the second half of the year.
Panellists mainly linked price hikes to the pass-through of higher wage costs to customers, with greater interest rates, freight costs and food prices also cited. Meanwhile, the rate of charge inflation at the UK level quickened to the sharpest since July.
Catherine van Weenen, NatWest London and the South East Regional Board, said, “More UK regions registered an expansion in activity in December, yet it was again London where the fastest growth was recorded by far.
“Driven by sharply rising new business levels, companies in the capital raised output to the greatest degree since May, continuing the upwards growth trend seen over the past four months.
“With sales volumes looking promising and firms expecting a positive reaction to new product releases in 2024, overall confidence rose to the highest since March 2022, suggesting there is reason to hope for a good year in the capital.
“Wages still appear to be causing some stickiness to inflation according to the survey’s price metrics, but the data also signals that hiring growth is being strained by a more strategic approach to costs, providing some expectation that salary pressures could also ease.”