Business activity in the South West continued to grow at pace at the start of the year, with firms across the region ramping up recruitment to meet demand for work.
However, skills shortages and greater competition for workers led to a steeper rise in backlogs of work and cost pressures remained historically sharp, according to the latest data from NatWest.
At 54.0 in January, the headline NatWest South West 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 from December's nine-month low of 52.3 and pointed to a solid rate of output expansion.
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Though softer than the average seen for 2021 (54.5), the upturn was broadly in line with the 海角视频-wide trend (54.2).
January data pointed to an eleventh successive monthly increase in new orders at South West private sector businesses. The rate of growth quickened from December and was sharp overall.
Reports from panel members indicated a further recovery from the pandemic, looser Covid-19 restrictions and rising demand across domestic and external client bases had boosted sales.
Business confidence regarding the one-year outlook for output across the South West also improved in January. Firms said they expected reduced Covid-19 cases and a return to "more normal" business conditions to support output growth over the course of 2022. The overall degree of positive sentiment also reached its highest for five months.
Employers across the region continued to create jobs in January, but the rate of creation eased slightly from December. Rising staffing levels were generally attributed to increased client demand and the need to expand capacity. However, there were also reports of difficulties recruiting suitably skilled staff and retaining current workers.
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Higher sales, material and staff shortages, and worker absenteeism due to Covid led to a further build-up of backlogged work across the region, according to NatWest. The rate of accumulation was the steepest seen for six months and outpaced the 海角视频-wide average. Outstanding business has now risen in each of the past 10 months.
Adjusted for seasonal variance, the Input Prices Index signalled a further rapid rise in average input costs faced by South West private sector firms in January. This was despite the rate of inflation edging down to a four-month low. Anecdotal evidence linked increased expenses to higher costs for energy, materials, fuel and staff. There were also reports of higher transportation fees.
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Ongoing increases in input costs led businesses in the South West to hike their output prices again at the start of the year as they looked to ease pressure on margins. The rate of inflation was sharp and much quicker than the series average, despite softening to a four-month low.
Paul Edwards, chair of the NatWest South West Regional Board, said: "The South West had a strong start to 2022, with firms recording steeper increases in output and new business as the impact of the Omicron wave subsided and customer demand strengthened.
"Companies also expressed greater optimism towards the year-ahead, with confidence regarding future output improving to its highest for five months.
"However, shortages of materials and staff - partly due to illness from Covid-19 - drove a quicker rise in backlogs of work and pushed up expenses further."