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 – registered 58.5 in May, down slightly from 59.0 in April, but firmly above the 50.0 neutral mark.
The index signalled a sharp uplift in activity that was the fastest seen of the 12 monitored UK areas. Respondents frequently commented on rising business confidence, new client wins and improving economic conditions.
Private sector companies in London continued to see a considerable upturn in new business during May. The rate of growth strengthened for the fourth consecutive month and was the fastest since March 2022. Almost a third of surveyed firms saw new orders rise, with comments often relating to client wins, new product launches and increased foreign demand.
London remained the strongest-performing area of the UK in May, with the pick-up in new order growth contrasting with a slight softening at the national level.
The strong uplift in new business aligned with a further improvement in confidence during May, as the Future Activity Index rose to its highest since March 2022. Firms often cited that greater optimism in the economic outlook firmed their growth projections for both demand and activity.
London was one of only two monitored areas to record a stronger projection for output than in the previous survey period, the other being the West Midlands. The outlook for the UK notably fell slightly for the first time in seven months.
Adjusted for seasonal factors, the Employment Index signalled a solid rise in workforce numbers at London-based companies during May. While slowing from the previous survey period, the pace of job creation was the second-fastest for eight months and remained stronger than the national average. Panellists generally related an increase in employment to rising sales volumes.
London private sector firms reported another rise in the volume of outstanding business in May as demand pressures intensified. The rate of growth was solid but slipped from April’s 17-month high. London registered the steepest increase in work-in-hand of the 12 monitored UK areas, with the South East the only other region to experience an outright rise.
The seasonally adjusted Input Prices Index saw little change in May, signalling another steep uplift in business costs. While remaining lower than the record levels seen last year, the pace of inflation was sharper than at any time prior to August 2021.
Salary pressures were most commonly cited by companies that saw an increase in costs during May, as staff sought higher pay amid the cost-of-living crisis. Some firms also noted an increase in material costs, although others reported that lower manufacturing demand led suppliers to reduce their prices.
London businesses raised their selling prices at a slightly slower pace halfway through the second quarter, as the seasonally adjusted Prices Charged Index posted one of its lowest readings since mid-2021. That said, like input prices, the rate of inflation was stronger than seen in any month preceding this. The sharp uplift in charges was broadly aligned with the UK trend.
Catherine van Weenen, NatWest London and the South East Regional Board said, “London companies continued to enjoy a rapidly growing economy in May, as increasing services demand helped drive an upturn in new business across the city.
“The rate of growth quickened again and was the most marked for 14 months, supporting a sharp increase in business activity. Expectations towards future activity were also at a 14-month high, due to a sharp drop in the proportion of firms with a pessimistic view as near-term forecasts of a UK recession fade.
“Prices data nonetheless offer a more cautionary outlook, as wage pressures drive second-round inflation effects which firms are largely opting to pass on to clients. Despite softening, the rate of output charge inflation was still sharp and higher than at any time prior to mid-2021, signalling further pain for consumers ahead.”