The NatWest Regional Growth Tracker signalled a further month of new business growth for private sector companies in Yorkshire & Humber. Optimism towards the year-ahead outlook also rose to its highest level since October 2024.

The headline Yorkshire & Humber 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 – remained below the 50.0 no-change mark, but it rose for a second month in a row in January to 49.3, from 48.9 in December, to signal a decrease in output that was slower than at the end of 2025 and only marginal overall.

Malcolm Buchanan, Chair of the NatWest Regional Board, said: "Sustained growth in demand for Yorkshire & Humber goods and services and a strengthening of firms' year-ahead expectations for activity serve as promising leading indicators for the region's economy. A softening of cost pressures, in tandem with stronger increases in prices charged, also bodes well from a margins perspective, implying a diminished strain on earnings.

"However, the local labour market continues to be challenged by a hesitancy among firms to grow their workforces. Payroll numbers fell for a fourteenth straight month in January, and at a rate that outpaced the UK-wide average. However, the more upbeat business outlook could spur hiring, as firms look to achieve their more bullish growth forecasts for 2026."

Performance in relation to UK

Private sector companies in the Yorkshire & Humber region recorded further growth in their order books at the start of 2026, continuing the positive trend seen at the end of last year. This marked the first time in over a year that back-to-back months of new business growth have been recorded.

That said, January's expansion was only a marginal one and lagged behind that seen at the UK level.

Looking ahead, local businesses showed greater optimism towards the 12-month outlook. In fact, expectations were their most positive since October 2024, with a greater degree of confidence recorded in Yorkshire & Humber than for the UK overall.

Where positive year-ahead forecasts were registered, firms linked this to new product launches, upbeat sales projections, planned investment activity and supportive economic tailwinds.

Yorkshire & Humber businesses reduced employment once again during January, extending the current sequence of falling employment across the region to 14 months. Moreover, the rate at which workforce numbers declined quickened, with Wales the only monitored part of the UK to record a sharper fall than that seen locally.

Where a drop in staffing capacity was registered, firms reported cost-cutting efforts and the ending of fixed-term contracts.

Nonetheless, Yorkshire & Humber companies were able to complete backlogs of work in January. The rate of depletion matched that seen in December and was therefore the joint-weakest in a year-and-a-half.

Yorkshire & Humber posted the second-sharpest drop in work-in-hand of the 12 monitored parts of the UK, behind Wales.

Local companies reported another rise in their total operating expenses during the opening month of 2026. Higher metals prices, taxation and wages were noted as sources of inflationary pressure, anecdotal evidence showed. That said, the rise in input costs was the weakest in 15 months and below that registered for the other 11 monitored parts of the UK.

While cost pressures eased, Yorkshire & Humber companies looked to boost their margins as they raised their prices charged more aggressively at the beginning of the year. The rate of output price inflation quickened to a three-month high, but continued to trail the UK-wide average.