Natwest records fractional fall in South West business activity during November

Economic experts at Natwest have recorded a "fractional fall" in South West business activity in November.

It was the fifth time in the last six months that output had declined, with companies blaming the latest fall on lower intakes of new work.

At 49.8 in November, the headline NatWest South West PMI 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 – fell from 50.1 in October and below the no-change 50.0 mark.

Business activity in the South West stabilises in October - Natwest

Business activity meanwhile expanded slightly across the UK as a whole, following three months of contraction.

South West private sector companies recorded a decline in overall new work for the sixth successive month in November.

Despite quickening from October, the rate of reduction was modest and weaker than seen on average over this period.

Subdued client confidence and hesitancy to commit to new orders was cited as having dampened sales in the latest survey period.

Measured across the UK as a whole, new business fell at a marginal rate that was the softest in four months.

However, businesses operating in the South West remained upbeat that output levels would rise over the next year in November.

The degree of optimism was strong overall, albeit weaker than that seen in October. Sentiment was also not as robust as that seen on average across the UK as a whole. Companies that projected higher business activity often linked this to hopes of stronger client demand, new product releases, new investments and greater market share.

There were, though, some concerns over the current subdued economic climate.

The seasonally adjusted Employment Index posted only fractionally below the neutral 50.0 level in November, to signal broadly stable employment across the South West private sector. This followed modest cuts to payrolls in the prior two months.

While a number of firms mentioned lowering their headcounts due to softer demand conditions, others mentioned hiring new staff to increase capacity in the months ahead.

November survey data pointed to a further drop in the level of work-in-hand, but not yet completed, at South West private sector firms, thereby stretching the current run of decline to nine months. The rate of backlog depletion accelerated from October and was solid overall.

That said, the reduction remained slower than the national average for the second month in a row. Companies that registered a decline in outstanding business often commented on a lack of new orders to replace completed sales.

Private sector firms based in the South West registered a further increase in average operating expenses in November. The rate of cost inflation remained historically sharp, despite edging down to a 34-month low.

The upturn was broadly in line with that seen across the UK as a whole. Higher cost burdens were linked to a generally strong inflation environment, with energy and wages mentioned in particular.

Prices charged by South West private sector companies remained on an upward trend in November. The rate of increase was the softest recorded since February 2021, and slower than that seen at the national level.

Nevertheless, the pace of charge inflation continued to exceed the series average. Anecdotal evidence indicated that firms hiked their fees in order to help cover increases in their own expenses.

Paul Edwards, Chair of the NatWest South West Regional Board, commented: "After broadly stabilising in October, the latest PMI data indicated that business activity across the South West slipped back into contraction territory during November.

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"Though only fractional, the fall contrasted with a slight increase in output at the national level, with companies in the region often blaming the subdued performance on weak customer demand.

"Furthermore, lingering economic uncertainty and high inflation has led clients to become more reluctant to commit to sales and new projects, with total new orders falling for the sixth month in a row.

"As a result, companies in the South West continued to deplete their backlogs of work, which fell at a solid and accelerated pace. With demand waning and signs of excess capacity, there could be further cuts to output in the months ahead unless we see inflows of new business revive."