Signs that North East economy is moving out of contraction, according to February PMI

There are signs that the North East economy could be moving out of contraction for the first time in nearly a year, according to a new survey from NatWest and IHS Markit.

The data, taken from the latest NatWest Regional PMI survey, shows a slight rise in private sector activity for the first signs of economic growth for 10 months, though the changes were not significant and there are still concerns about the impact of coronavirus on future activity.

The PMI Business Activity Index is an indicator of regional economic health, which tracks the monthly change in the output of goods and services across the private sector and awards a score to reflect the growth in each area.

A reading above 50 signals growth, with higher readings signalling a faster rate of growth.
The North East received a score of 50.1 for February, which is just above the 50.0 threshold that separates growth from contraction.

This was an improvement on the 48.2 score recorded in January and marks the first time that the North East economy has not officially been in contraction since May 2019.

But despite these promising signs that the economy may be starting to rally, the survey still found that the North East is lagging behind when compared to most other regions in the UK, which received a score of 53.0 in February.

The only area which posted a lower score than the North East was Northern Ireland, which recorded a score of 46.5.

Richard Topliss, chair of the NatWest North regional board, said: “After a difficult period for the North East private sector, it was encouraging to see some green shoots starting to appear across the PMI data in February, with business activity up for the first time in 10 months, the decline in employment easing and local firms growing in confidence about the outlook.

“However, it’s important to consider that most of the field work for February’s survey was completed before the escalation of the coronavirus in Europe.

“The potential disruption to activity from virus containment efforts threatens to stop the North East’s recovery in its tracks, with the survey already revealing an impact on some of the region’s major export markets.”

Despite the fractional increase in the overall PMI score, the survey also found that the North East had suffered a marginal decrease in demand and capacity, although the rate of this decline had slowed.

The report saw a broad increase in average cost of goods and services, including in the North East, which enjoyed the first rise in prices for seven months.

Sebastian Burnside, NatWest chief economist, commented: “The number of UK regions reporting growth of business activity reached the highest for 16 months in February, in what was a further sign of post-election recovery in demand.

“The post-election bounce in hiring lost some momentum in February, with the number of the region’s recording higher employment dropping from 11 in January to just six.

“This tallies with the evidence from the surveys that, in most regions, firms appear to be already operating below full capacity.”

Looking ahead to the PMIs for March, a month in which the FTSE100 has lost 20 per cent of its value, it will be interesting to see how economic sentiment develops in the North East.