“Modest growth” in business activity during August

The North West firms saw “modest growth” in business activity during August as business confidence across the region declines.

That was according to NatWest’s latest Regional PMI data which showed a downturn in business activity across the UK as a whole.

The headline North West 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 – registered 51.8 in August.

This represented a slight improvement from July’s 51.1 and took it further above the 50.0 threshold that separates growth from contraction.

Of the 12 regions monitored, just two others (London and Yorkshire & Humber) recorded an increase business activity during the month.

The pace of growth remained muted compared to earlier in the year, however, amid signs that high inflation and the uncertain economic outlook were weighing on demand.

Business confidence in the region declined, whilst the pace of job creation slowed to an 18-month low.

After decreasing in July – albeit marginally – for the first time in 17 months, inflows of new work across the North West private sector broadly stagnated during August.

The result was in line with the UK-wide trend. Anecdotal evidence pointed to increased difficulty securing new work due to cost of living pressures and a general economic slowdown.

August data showed a drop in confidence among firms in the North West towards the year-ahead outlook for activity.

After recovering somewhat in July, expectations moved back closer to June’s 25-month low and were below the historical series average (since 2012). Concerns about weaker demand conditions and a potential contraction in the economy weighed on companies’ growth forecasts.

Employment levels continued to rise across the North West private sector during August, albeit with waning momentum.

Easing for the fourth time in the past five months, the rate of job creation was in fact the slowest seen since the current upturn in workforce numbers began in March 2021 and below the UK average.

Underling data indicated that hiring was centred on the region’s service sector, with local factory employment levels showing little-change.

Latest data showed further evidence of easing capacity pressures across the North West’s private sector, with August seeing another notable decline in backlogs of work (i.e. orders received but not yet completed) at firms. The decline was the fourth in the past five months and broad-based by sector, albeit slightly less than marked in July.

Malcolm Buchanan, Chair of North Regional Board, said: “In the context of a slowdown in the wider economy, growth of business activity in North West, albeit only modest, is a positive result for the region.

“However, there are a number of warnings signs in the latest PMI survey, which point to an increasingly difficult operating environment for local firms. Companies have now gone two months without any growth in new business and are quickly eating into their backlogs of work.

“Indeed, firms are less optimistic about the outlook and have slowed the rate job creation accordingly. With businesses spending more on energy and inputs generally, they have been left with little choice but to raise prices and could well take an even more cautious approach to hiring going forward.”