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South East Growth Tracker: softest drop in activity for four months in February

11th March 2025

Softest drop in activity for four months in February

  • Activity down at slowest pace since October 2024
  • Employment numbers trimmed amid signs of spare capacity
  • Rate of cost inflation cools

The contraction in the South East lost momentum in February according to the latest NatWest Regional Growth Tracker, while firms remained confident towards the future and enjoyed softer cost pressures. The headline South East 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 – posted at 48.6 in February, up from 48.2 in January. The region has been on a steady trend of decline since October last year, though rates of reduction have been only modest over this period. The pace of contraction in February was the least pronounced for four months.

As has been the case in each month since mid-2023, there was a further decrease in work outstanding across the South East private sector in February. Panellists often stated that they were able to keep on top of orders while new business inflows remained subdued. Still substantial, the rate of backlog depletion was its most pronounced for a year.

Amid ongoing signs of spare capacity, South East companies reduced their staffing levels at a noticeable rate in February. The decrease reflected a combination of the non-replacement of leavers and a reduction in temporary workers, often linked to the incoming National Insurance and Minimum Wage hikes. The rate of reduction was its fastest in four-and-a-half years.

Average input costs rose at a noticeable rate across the South East private sector economy in February, reflective mainly of increased wage burdens. The rate of inflation slowed from January’s 18-month high.

Catherine van Weenen, Territory Head of Commercial Mid Market at NatWest, said: “The South East trend for activity is moving in the right direction. Although just in contraction territory, the rate was the slowest seen for four months in February. The degree of confidence towards the year-ahead remained robust and was slightly stronger the national average, with many firms projecting growth. 

“South East companies were pragmatic in their employment decisions, having opted not to replace leavers during this period. Expecting a bounce-back, any reductions to headcounts were often fulfilled by lowering temp staff numbers. While demand conditions remained subdued, firms in the South East showed that they had used their time effectively by focusing on clearing backlogs.  

“There was some positive news on the price front, as both cost and charge inflation cooled. Cost pressures across the region were softer than seen on average over the UK.”

Performance in relation to UK

Of the 12 monitored UK areas, the South East ranked joint-ninth in terms of output, with the downturn largely in line with those seen across the East of England, the West Midlands, Yorkshire & Humber. At the same time, the rates of both backlog depletion and job shedding were slightly faster than the national averages.

Latest data pointed to a fourth consecutive monthly drop in new orders placed at South East companies. The speed of the downturn was its fastest in 16 months and strong overall. The sustained decline was linked by panellists to a demand slowdown and challenging economic conditions. Placing above the East Midlands, the North West and Northern Ireland, the South East placed ninth in the regional rankings for new orders.

The Future Activity Index remained firmly in positive territory in February, with a number of firms foreseeing an improvement in market conditions and growth over the coming 12 months. The degree of optimism was little changed from January and in line with the UK average.

Prices charged for South East goods and services were raised further midway through the opening quarter. Panellists often mentioned that they had increased their selling prices to cover higher costs. The rate of charge inflation ticked down slightly on the month, but was nevertheless steep and historically elevated. The South East sat near the middle of the regional rankings for prices charged, having posted a rate of inflation in line with the UK average. Meanwhile, firms faced softer cost pressures, where the rate of inflation was weaker than the UK average.

Click here to read the full report. 110325_RGT_Report_SE.pdf