Business activity picks up speed at start of fourth quarter

14 November 2016

  • Businesses across England report solid output growth in October as PMI moves to a nine-month high driven by improved demand at home and overseas

  • Average prices charged for goods and services rise at fastest rate for five-and-a-half years as cost pressures rise on the back of the weak pound

  • Strong growth seen in the North West and West Midlands, while London sees a loss of momentum

Businesses across England and Wales reported a solid start to the fourth quarter, with growth in business activity continuing to pick up speed, according to the latest Lloyds Bank Regional Purchasing Managers’ Index (PMI) survey.

However, October’s survey also brought news of rising inflationary pressures as the weak pound led to the biggest monthly increase in businesses’ costs since 2011.

The Lloyds Bank Regional PMI is the leading economic health-check of regions across England and Wales. It is based on responses from businesses in the manufacturing and service sectors about the amount of goods and services produced during October compared with a month earlier.

England’s PMI moved to a nine-month high of 54.9 in October, up from September’s 54.0 and well above its recent low of 47.4 recorded in July. A reading greater than 50 signifies growth, while a reading below signals contraction. The greater the divergence from the 50 mark, the faster the rate of change.

The strongest rise in business activity was recorded in the North West, where the PMI reached a two-year high of 58.4. Particularly strong upturns were also seen in the West Midlands (58.2) and Yorkshire & Humber (57.9), however London (52.8) saw a slowdown in output growth.

Wales maintained its recent strong performance into the fourth quarter, with its PMI rising to a 16-month high of 57.2.

The upturn in business activity in October was partly driven by stronger international demand for UK products and services linked to the weaker pound. However sterling’s weakness has caused a sharp jump in businesses’ input costs, which translated into the biggest increase in average prices charged for goods and services in five-and-a-half years.

Tim Hinton, Managing Director, Mid-Markets and SME Banking, Lloyds Banking Group said: “It's encouraging to see UK business activity growth back at the same, higher levels we had at the start of the year, driven by demand both at home and overseas.

“However, prices are rising at their fastest rate for over 5 years and the likelihood of greater inflationary pressure is very real. This will create potential headwinds for both consumers and businesses going forward.”