London and North East lead UK business growth in December

The latest NatWest UK Regional Growth Tracker reveals that London and the North East were the driving forces behind UK business growth in December 2024, with both regions recording robust increases in business activity.

The North East topped the rankings with a Business Activity Index of 55.1, followed closely by London at 54.2. The East Midlands, while modest at 50.7, also managed to record growth. Other regions struggled, with Scotland and the North West lagging at 46.9, and Northern Ireland at 47.7.

The Business Activity Index, which provides a monthly measure of economic health, indicates growth when it exceeds 50.

Sebastian Burnside, NatWest Chief Economist, remarked on the performance, stating: “London was the UK’s most consistent economic performer as 2024 came to a close and the North East was on an improving trajectory for the second half of last year.”

Burnside also highlighted Northern Ireland’s resilience in 2024, ranking second only to London in annual performance. Remarkably, it was the only region to record employment growth in December, as most areas experienced cooling labour markets due to rising labour costs and subdued business optimism.

“Business costs rose more quickly across three-quarters of the UK’s nations and regions in December, underpinned by increasing wages and salaries,” noted Burnside. “With these costs expected to rise further in the coming months as the announced increases in employers’ national insurance contributions and the national minimum wage come into effect, firms’ growth expectations are subdued by historical standards in most parts of the UK.”

Demand and outlook

Despite the North East and London seeing increases in new business, demand slowed in most other regions. The North West faced the steepest decline in new orders since November 2022.

The East Midlands stood out with the most optimistic outlook for 2025, recovering confidence after a dip in November. However, optimism waned in other areas, with Scotland showing the lowest sentiment for the year ahead.

Employment trends

Northern Ireland emerged as the sole region with employment growth, defying a broader UK trend of declining workforce numbers. Wales recorded the sharpest fall, marking its fourth consecutive monthly drop in staffing levels.

Capacity and inflation

Most regions experienced reduced pressure on capacity, with outstanding business levels declining. The North East bucked the trend, recording a modest increase in backlogs of work.

Inflationary pressures surged across nine of the 12 monitored regions. The North East led the charge in cost increases, driven by rising wages and salaries. Businesses in the region responded with significant price hikes for goods and services.

Challenges ahead

While 2024 ended with pockets of growth, businesses face mounting challenges in 2025. Rising costs, including increased national insurance contributions and higher minimum wages, are expected to temper growth expectations across most regions.

As firms brace for a challenging year, the East Midlands’ optimism and London and the North East’s resilience offer some hope for the UK’s economic landscape in 2025.