Expansion gathers pace

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The growth in the south west economy is at its strongest for three months, according to the latest South West PMI.

The headline seasonally adjusted Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – posted 54.5, up slightly from 54.3 in June, and above that reported for the UK as a whole for the first time in nine months.

The latest rise in activity was supported by a further increase in new orders received. However, this was boosted mainly by the region’s manufacturing sector, with service companies continuing to record lower activity and new work. Nonetheless, the rise in overall activity supported a further increase in employment. Meanwhile, input cost inflation eased for a third successive month.

Companies in the south west reported a marked rise in activity during July, which was the 15th in successive months. Moreover, the rate of output growth accelerated for a second consecutive month.

“The story of the last few months – that of a tentative recovery primarily driven by the manufacturing sector – continued into July”

A further increase in new order volumes supported the rise in output. Incoming new business has now increased in each of the last ten months, with the latest expansion the strongest in three months. Anecdotal evidence suggested that the rise in new orders reflected an ongoing improvement in general economic conditions.

July data signalled a marginal rise in employment within the south west. However, the latest increase in staffing levels was the slowest in the current five-month sequence of rises. The increase in headcounts was largely focused in the region’s manufacturing sector.

Despite accelerated growth in new order volumes, backlogs of work fell again in July. Nonetheless, the latest reduction in outstanding business was weaker than that indicated for the UK as a whole, and slower than the long-run average for the series.

Input costs faced by companies in the South West continued to rise in July, with input price inflation now sustained for nineteen successive months. However, the latest increase in costs was the slowest in eleven months. Reflective of the further rise in input prices, companies in the South West reported another increase in charges. However, the rate of output price inflation was only marginal, with the extent of the latest rise limited by strong competition for new business. Nonetheless, charges have now risen for six successive months.

Commenting on the South West PMI survey, Shane Vallance, Economics and Evidence Manager at South West RDA, said: “The story of the last few months – that of a tentative recovery primarily driven by the manufacturing sector – continued into July. It’s encouraging to see this was driven by growth in new orders, rather than businesses reducing backlogs. On the other hand, the national picture shows momentum in the economic recovery is slowing.”

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