North West output growth slows to fractional pace in July

Richard Topliss

The latest NatWest PMI report showed a further decline in new business in the North West of England during July, which brought output growth down to a fractional pace and softened job creation, as well.

Output prices rose at the weakest rate in more than three years. That said, firms gave an improved outlook for activity in the year ahead.

The headline NatWest North West Business Activity Index – a seasonally adjusted index that measures the change in the combined output of the region’s manufacturing and service sectors – fell from 51.4 in June to 50.2 in July, as a sustained decline in new business led to a further slowdown in activity growth.

The overall increase in output was fractional, and the softest recorded in three years.

In addition, the region dropped below the UK-wide average for the first time since last October.

Only the services sector reported higher activity during July. Manufacturers, meanwhile reduced production at a moderate pace, which panelists often linked to lower factory orders.

A decline in new orders in the manufacturing sector contributed to a third successive monthly drop in demand in the North West.

Some businesses continued to cite de-stocking at customers as a reason for lower sales. However, services companies saw a slight rise in new business over the month.

The rate of sales decline was weaker than in June which, combined with only a marginal upturn in output, led to a decelerated fall in backlogs of work at private sector firms.

Employment growth was also softer in July, and moderate.

According to sectoral data, a reduction in manufacturing workers partly offset higher employment at service providers.

Businesses in the North West raised their selling charges only modestly at the start of the third quarter, as falling demand weighed on some firms’ pricing decisions. This brought the rate of inflation down to its lowest since June 2016.

On the flip side, input costs also rose at the softest pace in this period. The rate of inflation continued the moderating trend seen over the course of the year so far, but remained sharp overall. Panelists often cited a deterioration in the exchange rate as a reason for higher cost burdens.

Nonetheless, business expectations improved for the first time in three months.

Firms noted that new products, company acquisitions and mergers are likely to drive growth in the coming year, with some also hoping for greater market stability after the Brexit date.

Richard Topliss, chair, NatWest North Regional Board, said: “The North West private sector lost further growth momentum at the beginning of the third quarter, according to latest survey results.

“Business activity was dampened by another, if marginal, fall in demand for goods and services, leading to only a slight increase in output.

“While the previous two decreases in new orders presented some worries for the region, the fact that activity is now nearing contraction territory amplifies these concerns.”

He added: “The decline was again centred on manufacturers, which broadly reflected the trend for the country. That said, services firms recorded a subdued rate of growth, suggesting that the slowdown may spread to this sector in the near future if conditions do not rebound.

“Nevertheless, the forward-looking sentiment indicator was up notably in July, with a number of businesses still predicting strong organic growth while also mentioning hopes of a stable Brexit resolution.”

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