Business activity in the South West stabilises in October - Natwest

Business activity in the South West's manufacturing and service sectors was unchanged in September, with improved business confidence and easing cost pressures, according to the monthly NatWest South West PMI Business Activity Index.

The seasonally-adjusted index posted broadly in line with the neutral 50.0 level at 50.1 in October. This was up from 47.8 in September and signalled broadly stable levels of business activity across the region following a four-month period of decline.

In contrast, output continued to decline modestly across the UK as a whole at the start of the final quarter of 2023.

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

The overall amount of new work placed with South West private sector firms fell only slightly at the start of the final quarter of 2023.

The rate of reduction was the weakest recorded over the current five-month sequence of contraction. While some companies noted that efforts to win new business had borne fruit, others indicated that a general slowdown in market conditions had weighed on overall client demand. Across the UK as a whole, new orders fell for the fourth straight month, albeit modestly.

The Future Activity Index continued to signal optimism among South West private sector firms when assessing the 12-month outlook for output in October.

The level of positive sentiment picked up from September's nine-month low and was slightly above the series average. Upbeat forecasts were generally underpinned by hopes that customer demand will revive and boost sales. Planned company expansions were also mentioned by some firms.

While business confidence softened slightly at the national level, it was in line with that recorded in the South West.

Private sector firms based in the South West lowered their staffing levels for the second successive month in October.

Anecdotal evidence linked the latest decline in payrolls to softer demand conditions and the non-replacement of voluntary leavers. The rate of job shedding eased to a modest pace, however, and was similar to that seen across the UK as a whole.

Outstanding business at South West private sector businesses fell again in October, thereby stretching the current sequence of depletion to eight months.

All 12 UK regions, only London recorded a softer decrease in backlogs than the South West in the latest survey period. Where lower amounts of unfinished work were reported, firms often attributed this to reduced inflows of incoming new work.

The latest survey data pointed to a further easing of cost pressures across the South West private sector during October. Though sharp, the rate of input price inflation was the softest recorded since January 2021.

A wide range of factors were mentioned as having increased in cost, including wages, raw materials, fuel and energy. A slower, but still marked rise in operating expenses was also seen across the UK as a whole.

The seasonally adjusted Prices Charged Index posted above the neutral 50.0 level in October to signal a further rise in selling prices across the South West. The rate of inflation quickened slightly on the month and remained historically sharp.

The increase was the second-slowest seen over the past two-and-a-half years. While a number of monitored firms mentioned raising their prices due to higher operating costs, others mentioned that overall pricing power was limited due to competitive market pressures.

Paul Edwards (pictured), chair of the NatWest South West Regional Board, said: "The latest PMI survey brought some encouraging signs that business conditions steadied across the South West at the start of the fourth quarter.

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"Firms registered stable activity following four months of decline, and new business fell at the softest rate in five months. Combined with indications that overall cost pressures are easing, this helped to boost business confidence around the 12-month outlook for output.

"Nevertheless, both input costs and selling prices continued to increase at elevated rates as companies reported further hikes in staff, raw material and energy costs. There are still signs of spare capacity in the sector too, with backlogs of work declining again, which contributed to a modest drop in employment.

"Overall, the more stable picture is a positive development, but firmer demand conditions and a sustained improvement in sales will be needed to put the sector on a solid growth footing."