BUSINESS activity in the region had a “strong” start to 2022, with rises in output and new work.

However, shortages of supplies and labour led to a steeper rise in backlogs of work, while costs remained historically high, according to the NatWest South West Business Activity Index, which covers Southampton. 

The index, a seasonally adjusted monthly measure of output in manufacturing and services, rose from December’s nine-month low of 52.3 to 54.

Paul Edwards, chair of the NatWest South West Regional Board, said: “The PMI data for January showed that the South West had a strong start to 2022, with firms recording steeper increases in output and new business as the impact of the Omicron wave subsided and customer demand strengthened.

“Companies also expressed greater optimism towards the year ahead, with confidence regarding future output improving to its highest for five months. However, shortages of materials and staff – partly due to illness from COVID-19 – drove a quicker rise in backlogs of work and pushed up expenses further.

“In order to fill vacancies and help boost capacity, companies across the region continued to ramp up their hiring activity, though there were reports that recruitment plans were constrained by skills shortages and greater competition for workers.”

January saw the 11th monthly rise in new orders at private sector business, but the upturn was slower than the UK average.

Reports from panel members indicated that recovery from the pandemic, looser Covid restrictions and rising demand from domestic and foreign clients had boosted sales.

Business confidence about the one-year outlook for output improved and the overall degree of positive sentiment reached its highest for five months. 

Employment increased, with the rate of job creation easing slightly since December but remaining much quicker than the series average and sharp overall. Rising staffing levels were generally attributed by panel members to increased client demand and the need to expand capacity.

However, there were also reports of difficulties recruiting suitably skilled staff and retaining current workers.

Higher sales, material and staff shortages, and worker absenteeism due to Covid-19 illness led to a further build-up of backlogged work at private sector firms in the South West. The rate of accumulation was the steepest seen for six months and outpaced the UK-wide average. Outstanding business has now risen in each of the past 10 months.

Adjusted for seasonal variance, the Input Prices Index signalled a further rapid rise in average input costs faced despite the rate of inflation edging down to a four-month low.

Anecdotal evidence linked increased expenses to higher costs for energy, materials, fuel and staff. There were also reports of higher transportation fees.

Across the UK as a whole, the rate of input price inflation accelerated to its second-highest on record and was slightly quicker than that seen in the South West.