Sustained drop in sales dampens business activity across the South West
A sustained drop in sales has dampened business activity across the South West, according to the latest NatWest South West PMI Business Activity Index.
The seasonally adjusted index, which measures the month-on-month change in the combined output of the region’s manufacturing and service sectors, picked up slightly from 49.5 in June to 49.8 at the start of the third quarter.
However, the reading remained below the crucial 50.0 level that separates growth from contraction, to signal a back-to-back decline in business activity across the region. Though only fractional, the reduction contrasted with a marginal expansion of business activity across the UK as a whole.
Read more: South West business activity growth hits 11-month high, says Natwest
July survey data signalled a back-to-back reduction in new orders received by South West private sector companies. Anecdotal evidence indicated that a general slowdown in market conditions and higher interest rates had weighed on customer spending.
The rate at which sales declined remained modest overall, but was steeper than that seen across the UK as a whole.
The Future Activity Index posted comfortably above the neutral 50.0 level in July, to signal that South West private sector firms were upbeat when assessing the 12-month outlook for business activity.
Growth forecasts were generally underpinned by expectations that new project starts, planned company expansions and stronger economic conditions will help to boost activity.
The level of positive sentiment improved to a four-month high and was above the series trend. That said, companies in the region remained slightly less upbeat than the average UK firm.
Latest data revealed a fourth successive monthly increase in overall workforce numbers at South West private sector firms in July. Furthermore, the rate of job creation edged up to a three-month high and was solid overall.
The South West also recorded the quickest rate of job creation of all 12 monitored UK regions. There were frequent reports of businesses adding to their payrolls in anticipation of new projects and growth plans for the year ahead.
The level of work-in-hand (but not yet completed) at South West private sector firms declined for the fifth straight month in July. The rate of depletion was identical to that seen in June and sharp, with a number of companies stating that fewer inflows of new work had enabled them to clear backlogs in the latest survey period.
Across the UK as a whole, unfinished business declined at a steeper rate, albeit one that remained softer than that seen in the South West.
Private sector companies based in the South West registered a further increase in average input costs during July, thereby stretching the current run of inflation to 38 months. The rate of growth quickened slightly from June and was sharp, but remained much softer than the average over 2022.
Panel members often mentioned that the uptick in expenses was broad based amid the strong inflationary environment, with wages, rent and energy costs cited in particular. The rate of cost inflation in the South West was slightly quicker than the national average.
The seasonally adjusted Prices Charged Index signalled a sustained and strong increase in selling prices across the South West private sector during July.
The rate of inflation was fractionally quicker than that seen in June and nearly identical to that seen across the UK as a whole. Higher selling prices were generally linked to the pass-through of higher expenses to customers.
Paul Edwards, Chair of the NatWest South West Regional Board, commented: "Private sector firms in the South West remained under pressure at the start of the third quarter, as a modest decline in new work led to another slight drop in business activity.
"Higher borrowing costs and increased economic uncertainty meant that client budgets are not only being squeezed, but businesses are more hesitant to commit to orders right now.
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"The prices data show that inflationary pressure may be stickier than anticipated, partly due to stronger wage inflation, although this contrasts with private sector firms feeling more upbeat when assessing the 12-month outlook.
"Employment across the South West remained a bright spot, as firms continued to add to their payrolls amid expectations of rising business requirements in the months ahead.
"It was particularly encouraging to see that the rate of job creation in the South West was the best seen of all 12 monitored UK regions."
