Number of business sectors in growth mode hits ten-month high despite 'acute' pressures

More UK business sectors reported an increase in output than at any time in the past ten months during February as the economy’s “relative robustness” propped up demand, a key survey today reveals.

Of the 14 sectors monitored by the Bank of Scotland UK Sector Tracker, 11 saw output expand in February, compared with just six in January, marking the highest number since April 2022. A reading above 50 on the tracker index indicates expansion, while a reading below that mark denotes contraction. Technology equipment manufacturers posted the fastest rate of output growth (63.6 versus. 48.4 in January), supported by stronger new orders, improved capacity and fewer semiconductor shortages, according to surveyed firms.

Output growth across sectors was supported by increasing numbers of new orders, the Lloyds-owned bank noted. In February, ten of the 14 sectors saw new order volumes expand (compared to five in January). Food and drink manufacturers saw new order volume grow at the fastest rate (59.8 versus a reading of 54.8 in January). Increasing customer confidence amid weaker inflation helped drive the rise in demand.

UK businesses increased their headcounts for the first time in three months during February. However, despite the pick-up in staffing levels, reports by firms of labour shortages rose, the bank added. In February, the number of businesses commenting on backlogs of work due to labour shortages was at an eight-month high.

Jeavon Lolay, head of economics and market insight at Lloyds Bank Corporate & Institutional Banking, said: “February’s data underlines the economy’s relative robustness, and gives some reasons for optimism for the year ahead. While inflationary pressures are still acute and households continue to be cautious with spending, a healthy labour market is helping underpin confidence and demand. However, it will also play a crucial role in inflation’s future trajectory. A persistently tight labour market could maintain, or even accelerate, wage inflation.”

Scott Barton, managing director, Lloyds Bank Corporate & Institutional Banking, added: “As demand strengthens, management teams will need to shift their attention to building capacity. While staffing will be a critical aspect of this, so will be the timing and structuring of investment flows. The key will be to manage the impact on available working capital. With strategic planning and prudent financial management businesses can position themselves for sustainable growth.”

Meanwhile, small businesses in Scotland are among the least likely to predict growth of any region in the UK, according to new research from Novuna Business Finance. A sample of 1,000 small businesses across the UK were quizzed about their growth outlook for the next three months, with the results showing that 28 per cent of firms in Scotland anticipated either strong or modest growth. This was below the UK national average of 33 per cent and significantly behind other UK regions such as London (41 per cent), and the Midlands (35 per cent).

Jo Morris, head of insight at Novuna Business Finance, said: “Severe headwinds of an uncertain economic environment, spiralling inflation and high energy costs are presenting a particularly challenging playing field for businesses, which we see in our research.”