February Signals a Softening of Output Growth

London’s PMI: A Gentle Up‑Slide in the Face of a Rough Sea

The NatWest London PMI Business Activity Index, that handy seasonally‑adjusted gauge of manufacturing plus services, slipped from 58.3 in January to 56.5 in February. It’s the first monthly dip since August 2023, yet it still paints a picture of solid growth thanks to a steady uptick in new business.

New Orders Keep Rolling In

Six‑month growth streak – New orders at private sector firms were on the rise until mid‑first quarter, extending a six‑month run of expansion.
Speed of growth – Though the pace slowed from January, the growth rate remained the fastest among the 12 UK regions monitored.
Drivers – Companies cited improving markets, effective sales campaigns, a surge in air freight demand, and fresh customer acquisitions.

Confidence on the Rise

Two‑year high – Business expectations for future activity hit the highest level in exactly two years.
Optimism drives predictions – Around 63 % forecast output growth over the next 12 months, versus a modest 10 % expecting a decline.
Bright outlook – Firms echoed hopes for stronger sales, improved returns on long‑term investment, and a sharper boom in activity.

Workforce Movements

Hiring pace – Workforce growth in February was moderate, slower than January, yet still the second‑fastest in a seven‑month span.
National contrast – The uptick in employment in London dwarfed the fractional rise seen across the UK.
Order management – Firms reported an ability to keep up with orders after two months of building backlogs, though February’s numbers edged only slightly higher.

Inflationary Pressures Climb

Input price surge – Prices rose at the quickest rate in six months, after hitting a 33‑month low in January.
Key cost drivers – Wages led the charge, followed by higher electricity and supplier costs.
Cost passing – London firms were quick to transfer the brisk input price inflation onto customers by raising charges.
Nationwide impact – Inflation in London stayed well above the long‑term trend, ranking as the strongest in the UK.

Economist’s Take

“These new PMI figures build on the positive start to the year we reported last month,” said NatWest Chief Economist Sebastian Burnside.
“Business activity is rising in most regions as new demand takes hold, and confidence continues to perk up. Price pressures are on the up‑scale, driven by wage hikes and shipping costs, especially in London.”

Burnside added,
“With backlogs easing, capacity isn’t strained, but wage pressures remain high, so hiring still feels a bit cautious.”
“The UK labor market is holding steady, despite divergent trends across sub‑national areas.”