London Powers Ahead While Regional Growth Disparities Widen

Key points:

  • Output growth in the capital rose to 16-month high in July
  • All nine English regions maintain some degree of business activity growth on previous month
  • North West and South West business activity close to stagnation
  • Job creation weakens across majority of regions

July’s data showed higher levels of private sector business activity across all nine English regions monitored by the survey, as well as Scotland and Wales. However, growth performance between the regions diverged further in July. London posted by far the strongest expansion of business activity, according to the latest survey data from the Lloyds TSB regional Purchasing Managers’ Index® (PMI®).

At the other end of the scale, the North West and South West registered only marginal output growth. As a result, the gap between the fastest and slowest growing English regions is now at the widest that it has been for just over two years. On the employment front, weakening trends were recorded in eight of the nine English regions during July, with the North West and Yorkshire & Humberside posting outright declines in staffing levels. The notable exception was the North East, where job creation picked up to an eight-month high and was the strongest overall.

Input price inflation reduced in the majority of regions, with the Midlands seeing a particularly marked slowdown. Correspondingly, most regions also recorded weaker growth of output charges.


Commenting on the Lloyds TSB Regional PMIs, John Maltby, managing director, Lloyds TSB Commercial, said:

“July’s survey data points to an uneven regional recovery, with London advancing clear of the pack, the South and Midlands following behind, and the northern regions along with the South West moving into the slow lane. Widening growth disparities reflect the differing exposure of the English regions to high growth export markets, alongside varying sensitivity to government spending patter ns and muted domestic consumer spending. Weakening employment trends across the majority of regions underline the increasing nervousness about the economic outlook, although cost inflation has reduced to provide some respite to businesses. However, the fact that all nine English regions have managed to maintain a degree of business activity growth over the previous month is an encouraging sign that the ground gained in the past year hasn’t been lost.”

Output and demand

Stronger growth of business activity was recorded in five of the nine English regions during July, led by London, which posted its sharpest expansion since March 2010. Trailing the capital by a considerable margin, but nevertheless recording solid rates of growth, were the East Midlands, South East, West Midlands and East of England. The weakest performers were the North West and South West, with the latter registering its weakest growth in 27 months. Nevertheless they maintained a Business Activity Index above 50, indicating an increase on the previous month.

Underpinning London’s substantial rate of output growth was a marked rise in incoming new business during July. The increase in new work in the capital was comfortably the sharpest of all English regions. The weakest rise in new business was reported by firms in the East of England.

Employment and backlogs

Higher employment was indicated in seven of the nine English regions during the latest survey period, with only the North West and Yorkshire & Humber recording declines. Solid rates of job creation were reported in the North East, East Midlands and West Midlands, but gains elsewhere were marginal.

The North East’s positive employment performance during July in part reflected firms in the region looking to tackle rising backlogs of work. Growth of outstanding business was at a four-month high and the sharpest of all regions. The only other increase was recorded in London. Backlogs declined elsewhere, with particularly marked reductions signalled in Yorkshire & Humber and the East Midlands.

Input and output prices

Input price inflation in all regions remained below the peaks seen earlier in the year. Similar rises in cost burdens were recorded across the English regions. The gap between the sharpest and weakest rates of inflation was the lowest in just over 11 years.

Higher output charges were signalled in all nine regions during July. The strongest increase was reported in the South West and the weakest in London.

PMI Business Activity (Output) Index

Heat map, July 2011

Numbers relate to monthly seasonally adjusted diffusion indexes.

An index reading above 50 signals an increase on the previous month.

A reading below 50 signals a decline.

The greater the divergence from 50, the greater the rate of change indicated.

Darker colours show faster growth in business activity.

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