North West business activity stabilises in December

The North West’s private sector economy ended 2022 on a more stable footing, with business activity holding steady in December after three straight months of contraction, according to the latest Regional PMI data from NatWest.

Elsewhere, the survey signalled a further easing of price pressures, albeit with rates of both input cost and output charge inflation remaining above their historical averages.

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 in line with the 50.0 threshold that separates growth from contraction in December.

It was up from 48.5 in November and followed three consecutive sub-50 readings.

Firms operating in the North West continued to report various headwinds to demand during December, including client destocking and general economic uncertainty.

The result was a sixth consecutive monthly decrease in intakes of new business. However, the rate of decline eased notably since November, when it was the quickest for the best part of two years, to only a modest pace that was the weakest for three months.

The reduction was also less marked than that recorded across the UK as a whole.

Firms’ expectations towards future activity improved for the second month running in December, thereby recovering further from October’s near two-and-and-a-half year low.

That said, confidence remained subdued by historical standards, with local businesses continuing to highlight concerns about a downturn in the economy and a squeeze on client budgets.

Rising business costs remained a feature of the survey data in December. Panel members commented on higher prices paid for food and energy, as well as citing staff pay demands and the influence of exchange rate factors.

The rate of cost inflation remained elevated by historical standards. However, amid reports of a softening of a range of material prices, it fell further from the record high seen earlier in the year to a 22-month low and was also the weakest among the 12 regions monitored.

The pass-through of higher costs by local businesses to customers led to a further steep rise in average prices charged for goods and services across the North West in December.

However, although still above the historical series average, the rate of inflation eased for the seventh time in the past eight months, taking it to its lowest since February 2021.

Firms in the North West recorded a further increase in workforce numbers in December, stretching the current sequence of job creation to 22 months. Although only modest, the increase in employment contrasted with the broader trend across the UK as a whole, which saw a first – albeit marginal – decrease in staffing levels since February 2021.

Underlying data indicated that hiring across the North West private sector was centred mainly on the service sector.

December’s survey signalled a seventh successive monthly decrease in backlogs of work across the North West private sector.

The result reflected a combination of falling inflows of new work and continued growth in staffing capacity. Furthermore, the rate at which outstanding business was depleted accelerated notably from the previous survey period and was the quickest since last August.

Malcolm Buchanan, chair of NatWest North regional board, said: “In the context of three straight months of contraction prior to December, a PMI reading of 50.0, signalling a stabilisation in business activity, is a relatively positive result and shows the region ended the year on a firmer footing.

“On the employment front, the North West went against the broader UK trend and registered a further – albeit modest – rise in employment.

“Encouragement could also be gleaned from the survey’s measures of inflationary pressures, which fell to their lowest since February 2021 and signalled slower prices increases than in any other region.”

He added: ” Still, despite sentiment recovering further from October’s recent low, local firms remain only cautiously optimistic about the outlook amid ongoing concerns about a broad economy slowdown and a squeeze on customer budgets.”