North West private sector sees sustained decline in business activity

The North West private sector showed a sustained decline in business activity at the start of the fourth quarter, the latest regional PMI data from NatWest has shown.

Growing concerns about the outlook for the economy and persistent high inflation have weighed on demand.

The headline North West PMI 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 48.4 in October, down from September’s 49.4 and falling further below the 50.0 threshold that separates growth from contraction.

The decline in business activity, which was led by the region’s manufacturing sector, was broadly in line with that seen across the UK as a whole (48.2).

October’s survey indicated a further weakening of demand faced by firms in the North West, as underscored by a fourth straight monthly decline in inflows of new business across the region. Furthermore, the rate of contraction accelerated and was the steepest since January 2021.

Underlying data showed that the main drag on new orders came from the manufacturing sector.

Firms in the North West grew less optimistic about the year-ahead outlook in October.

The decline in expectations continued a trend seen throughout most of 2022 so far, and left confidence at its lowest since May 2020. The result reflected growing concerns about an economic slowdown, both domestically and internationally, anecdotal evidence showed.

A further slowdown in the rate of employment growth across the North West private sector was signalled in October.

The rise in workforce numbers was only modest and the slowest in the current sequence of job creation stretching back to March 2021. The region’s manufacturing businesses even noted a decline in staffing levels, citing lower output requirements and efforts to trim costs.

After having fallen in each of the previous four months, the level of order backlogs at companies in the North West was little changed in October. Easing capacity pressures across the region’s manufacturing sector contrasted with a modest accumulation of outstanding business at local services firms, who reported difficulty keeping up with inflows of new work.

There remained strong upward pressure on business costs at the start of the fourth quarter, owing to an array of factors such as soaring energy bills, a weak pound, higher material prices and growing wage demands.

Measured overall, input costs continued to rise at a rate well above the historical series average. That said, having ticked down for the fifth month in a row, the rate of increase reached its lowest since May 2021.

Although businesses in the North West continued to pass on higher costs to customers during October via hikes in prices charged, they did so less aggressively than in recent months. Average fees charged for the provision of goods and services rose to the least extent since April 2021 – and slower than the national rate. That said, the rate of inflation remained quicker than at almost any time in the series history prior to this

Malcolm Buchanan, chair of North regional board, said: “October’s PMI survey showed back-to-back reductions in business activity across the North West private sector, in the latest sign of growing strain on the economy from soaring inflation and heightened uncertainty.

“The North West wasn’t alone in recording a decrease in output, with all other regions also now in contraction.”

He added: “The local jobs market is starting to feel the effects of the economic slowdown, with pace of job creation across the region falling to the lowest in over a year-and-a-half.

“In a rare piece of good news, the rates of increase in both firms’ input costs and output prices eased further from their recent peaks. Still, inflationary pressures remain stubbornly high, pointing the prospect of yet more interest rate increases and, thereby, an additional squeeze on disposable incomes.

“Amid this backdrop, firms in the North West are the least optimistic about their growth prospects since the initial COVID wave two-and-a-half years ago.”