Business activity growth in the UK capital was sustained in September, despite a weakening of sales momentum, according to the NatWest London Growth Tracker, which tracks monthly changes in business activity, demand, employment, backlogs, prices and the year-ahead outlook.
Its London 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 – fell from 56.7 in August to 53.8 in September. While this indicated a softer pace of growth, the reading remained consistent with a solid expansion in private sector activity.
London-based firms reported that supportive demand conditions contributed to the increase in output during the latest survey period. However, some firms noted contract delays and a pause in spending decisions.
Catherine van Weenen, Territory Head of Commercial Mid Market at NatWest, said: “London remained at the top of the leaderboard in September, amid further expansions in activity and sales, while several other regions fell back into decline. Nevertheless, the capital did not go unscathed, as growth momentum slowed following August’s 16-month high. Some businesses reported that clients had deferred spending decisions, which could act as a brake on growth.”
The data is compiled from local companies that participate in S&P Global’s UK manufacturing and services PMI surveys.
Although the rate of activity growth softened in September, it remained the fastest recorded among the 12 monitored UK regions for the third consecutive month. London, the East of England, and the South West were the only regions to see an expansion in output.
The latest data signalled an increase in new work at London companies for the second month running in September. The rate of expansion was solid and the strongest recorded out of the 12 monitored UK areas, despite softening from August. The sustained uplift across London contrasted with a fresh decline nationwide.
Several businesses reported higher customer demand and greater market stability. However, some noted that clients were delaying decisions on new orders and projects.
London companies remained optimistic about future activity levels at the end of the third quarter, although the degree of confidence slipped from a seven-month high in August. According to survey responses, higher sales, returns on product investments, and facility expansions supported growth expectations. Projections in London were slightly stronger than the UK average.
Export conditions continue to improve solidly, with London firms enjoying another strong improvement at the end of the third quarter. Solid growth in the US private sector was a key indicator of better trading conditions in September, alongside faster expansions in Germany, Ireland and the Netherlands. French output fell, with the rate of contraction quickening to a five-month high.
September data indicated a solid decline in staff numbers at London-based companies, extending the run of job shedding to ten months. The rate of decrease accelerated from August, but was less severe than the UK-wide trend. In instances where employment fell, panellists cited a mix of cost pressures and spare capacity.
Although demand levels rose in September, the volume of outstanding work across the local economy dropped for the tenth successive month. In line with the employment trend, the rate at which backlogs fell quickened slightly from the previous month but was softer than the UK average.
Businesses in London reported slightly milder rates of input and output price inflation at the end of the third quarter. However, the increase in input costs remained sharp and quicker than the long-run trend.
Survey panellists cited several factors driving up costs, including rising wages, food prices, IT service costs, energy prices and freight charges.
While some firms were able to raise their selling prices to pass costs on to customers, others felt compelled to lower their charges to remain competitive. As a result, the rate of selling price inflation declined for the second consecutive month and was the second weakest recorded in over four years (after June).
Catherine van Weenen added: “Input cost inflation remained elevated in September, but this did not prevent a softer increase in average selling prices. In fact, the uptick was the second slowest in over four years, with comments suggesting that competitive pressures are prompting many London firms to absorb higher costs or seek savings rather than raise their charges. Savings were partly achieved through job cuts, marking the tenth consecutive month of declining employment.”
Find out more on the NatWest website.
