North West private sector sees sharper falls in new work and business activity

NatWest PMI data for November highlighted another challenging month for private sector companies in the North West, with a quicker decline in new work leading to further contractions in business activity and employment.

At the same time, input cost inflation moderated, while business confidence improved on the back of expectations of greater clarity regarding Brexit.

After increasing to 49.0 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 – fell to 47.4 in November.

The latest figure pointed to a solid and accelerated decline in private sector output.

Where a reduction was signalled, survey members commented on weak underlying demand as well as election and Brexit disruptions.

New business inflows declined for the seventh month in a row midway through the final quarter of 2019.

Having accelerated from October, the pace of contraction was the second-fastest over this period, slower than seen in September.

Moreover, among the 10 UK regions whereby sales decreased, only Northern Ireland saw a steeper rate of reduction than the North West.

Faced with falling sales, North West firms focused on the completion of outstanding business in November. Backlogs of work decreased at a steep rate that was the most pronounced in more than eight years.

In turn, spare capacity led to another monthly decline in employment. However, in contrast to the trends for sales and business activity, the reduction in private sector jobs softened and was only slight.

Sterling weakness and rising staff costs drove a further increase in average input prices during November.

That said, the overall rate of cost inflation moderated to the weakest since June 2016 and was below that seen at the UK level.

Sub-sector data for the North West indicated that cost inflation was more pronounced among service providers than manufacturers.

Some companies opted to pass additional cost burdens on to their clients by increasing their selling prices. Output charges in the North West rose at the quickest rate in six months, but one that matched the national average.

Optimism among North West firms was sustained in November, with 41% of companies expecting output growth in the year ahead.

Positive sentiment was underpinned by hopes that Brexit uncertainty will fade, while some panelists reported investment plans and the launch of new products. The overall level of confidence improved to a four-month high.

Richard Topliss, chair, NatWest North regional board, said: “North West businesses continued with challenging market conditions as we head towards the end of 2019, with uncertainty regarding Brexit and the upcoming election weighing on the region’s economic performance.

“Although the trends for new business and output conform to those seen in almost all parts of the UK, rates of reduction in the region were among the fastest nationally.

“Still, firms see an end to the current challenges to the economic climate and hope that greater clarity regarding the UK’s exit from the EU will underpin growth of business activity in the year ahead.”