South West business conditions deteriorate at quicker pace in August - Natwest

Business activity in the South West declined for the third straight month, with the latest reduction the steepest recorded since last November, according to the latest NatWest South West PMI published today (Monday).

The index, which measures the month-on-month change in the combined output of the region’s manufacturing and service sectors, fell from 49.8 in July to 46.7 in August.

Business activity also fell across the UK as a whole during August, though the rate of contraction was only modest.

Read more: South West business activity growth hits 11-month high, says Natwest

The amount of new work received by South West private sector companies declined for the third straight month in August.

The rate of contraction was the steepest recorded since last November. Weaker economic conditions and higher interest rates reportedly led clients to adopt a more cautious approach to spending, according to panellists.

The South West saw the most pronounced drop in sales of all 12 monitored UK regions during August.

When assessing the 12-month outlook for business activity, South West private sector firms remained optimistic in August.

The degree of positive sentiment improved to the highest in five months and exceeded the UK-wide average.

Companies that anticipate output to increase generally linked this to hopes that economic conditions and consumer confidence will strengthen.

There were also reports of new marketing strategies and investment in new projects.

August survey data revealed a further increase in employment across the South West private sector.

However, the rate of expansion eased to a modest pace that was the slowest seen over the current five-month sequence of job creation.

Where higher headcounts were reported, firms often linked this to new projects and efforts to gear up for future growth. Across the UK as a whole, staffing levels also expanded at a softer pace and one that remained weaker than that seen in the South West.

Outstanding workloads at private sector companies based in the South West declined again in August, thereby stretching the current period of reduction to six months.

The rate of depletion quickened to a rapid pace that was the most pronounced since June 2020. Firms often commented that fewer new orders had underpinned the latest drop in backlogs.

At the national level, unfinished work also fell at an accelerated rate in August. However, the rate of depletion remained softer than that recorded in the South West.

Adjusted for seasonal factors, the Input Prices Index posted above the neutral 50.0 level to signal a sustained increase in cost burdens faced by South West private sector firms in August.

Furthermore, the rate of inflation edged up to the sharpest since February and was quicker than the UK-wide trend. Panellists often commented that a generally strong inflationary environment had pushed up costs, especially for staff.

Higher costs were partly passed on to clients in the form of higher selling prices across the South West during August. While sharp and above the series average, the rate of output charge inflation was the softest seen in nearly two-and-a-half years.

Private sector companies in the South West increased their selling prices at a quicker pace than seen on average across the UK as a whole.

Paul Edwards, chair of the NatWest South West Regional Board, said: "August PMI data pointed to a notable weakening of business conditions across the South West.

"Output and new orders both fell at the steepest rates for nine months, with firms often commenting that lingering economic uncertainty and increased borrowing costs had led to more cautious spending decisions among clients.

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"At the same time, inflationary pressures remained stubbornly high, with the latest survey showing input costs rising at the quickest rate since February.

"On a more positive note, confidence around the 12-month outlook improved to its highest since March, with firms often hoping that the cost of living crisis will subside and that confidence and spending will recover.

"Furthermore, firms still added to their headcounts in August in anticipation of better times ahead."