Contractions in new work and output across North West soften during October

Although economic conditions in the North West continued to deteriorate in October, according to the latest NatWest PMI data, there were signs of the downturn easing.

New work intakes decreased at the slowest pace in three months, cushioning the fall in business activity and lifting business sentiment from September’s recent low.

However, an ongoing decline in demand coupled with rising cost burdens led to a sharper reduction in employment.

Rising from 46.4 in September to 49 in October, 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 – highlighted a softer and only marginal decline in private sector output.

Companies that signalled lower business activity commented on lingering Brexit uncertainty and subdued demand conditions.

Incoming new work decreased for the sixth month running in October, which survey participants linked to reduced client activity and market uncertainty.

The rate of contraction was moderate and softened to the weakest in three months, but outpaced the UK average.

In fact, the sales trend for the North West was among the worst seen nationally, matching those recorded in the East and North East of England and softer only than that noted in Northern Ireland.

As was the case in September, private sector employment in the North West declined in October.

The rate of contraction was solid and the quickest in more than eight years. Anecdotal evidence indicated that the fall largely reflected cost-cutting initiatives.

Despite job shedding, companies continued to be able to reduce their outstanding business. The rate of backlog depletion was the slowest registered in three months, but remained sharp and stronger than the UK average.

Amid reports of sterling weakness, as well as higher energy, material and tax costs, input prices faced by firms in the North West rose further. Although still strong, the rate of inflation moderated to a 40-month low.

In response to rising cost burdens some firms increased their selling prices, but the overall rate of inflation was broadly similar to September’s 43-month low. As was the case for input costs, the upturn in output charges was weaker than seen at the national level.

Business sentiment in the North West strengthened from September’s near seven-year low, with a number of companies hoping for a resolution to the current Brexit deadlock.

Output growth is generally expected to be driven by acquisitions, investment, mergers and new product launches.

Richard Topliss, chair, NatWest North regional board, said: “Although Brexit-related uncertainty continued to dampen sales, output and employment in the North West private sector economy, October data, at least, showed some tentative signs of a recovery.

“This was evidenced by much softer declines in new work and business activity.

“There was some respite on the cost front as input price inflation moderated to its slowest rate in over three years.

“Still, stiff competition for new business meant that companies continued to absorb most of the rise in cost burdens and increased their prices only marginally.”

He added: “With local firms hoping for greater clarity regarding Brexit, there was an improvement in business confidence at the start of the final quarter of 2019.”