Why private sector activity soared in February

The latest NatWest PMI survey found that business confidence soared during the month, despite softer new order growth and a slower rise in staff numbers.

On the cost front, input prices continued to rise markedly, but the rate of inflation eased to a three-month low.

Increased costs burdens led firms to raise average output charges, with the latest hike broadly in line with that seen in January.

The headline NatWest Yorkshire & the Humber Business Activity Index is a seasonally adjusted index that measures month-on-month changes in the combined output of the region’s manufacturing and service sectors. It posted 52.7 in February, up from 51.9 in January, to signal a faster expansion in Yorkshire business activity.

Moreover, the rate of growth was the sharpest since May 2019. Although the pace of increase was slower than the UK average, the result represented a notable turnaround from the declines seen in the final quarter of 2019.

The expansion in Yorkshire and the Humber business activity was partly supported by a second successive monthly rise in new orders during February.

Anecdotal evidence pointed to stronger demand conditions on the back of the general election result and the reduced uncertainty surrounding Brexit. That said, the rate of growth in new business eased from January and was slightly softer than the national average.

Although slower than in January, new order growth prompted firms to continue increasing their staff numbers in February.

Input prices faced by private sector firms in Yorkshire & the Humber continued to rise markedly in February, extending the current run of inflation that began nearly four years ago. Panellists cited higher costs for fuel, insurance and labour.

That said, the rate of inflation eased to the softest for three months. In fact, the latest increase was the slowest across all 12 monitored UK regions. Amid rising cost burdens, there was another increase in average output prices across Yorkshire & the Humber during February.

Private sector firms in Yorkshire & the Humber remained optimistic towards the one-year business outlook in February.

Moreover, the degree of positivity rose to the highest level since April 2018, and was the second-strongest among the 12 monitored regions. Confidence was often linked to expectations for increased fiscal spending.

Richard Topliss, chairman of NatWest North Regional Board, said: “Yorkshire & the Humber businesses produced strong headline growth in February, with activity expanding at the quickest rate for nine months. Moreover, it was clear that firms expected such growth to continue, with positivity towards the business outlook rising to the strongest level since April 2018.

“That said, such confidence was not supported by underlying demand data, with firms posting softer rises in both new business and employment, while export climate data pointed to weakness abroad.”

He added: “In addition, while positivity surrounding the election result is well-founded, the vast majority of results were collected before the wider outbreak of coronavirus in Europe. Further spreading of the virus would surely weigh on sentiment going forward.”