Hope that North West economy is starting to turn the corner

Malcolm Buchanan

November saw slower falls in both output and new orders across the North West private sector, in a further sign that the region’s downturn was easing, the latest NatWest Regional PMI survey showed.

Elsewhere, latest data signalled a slight decrease in employment in the region, with local firms noting a rise in cost pressures and voicing a degree of uncertainty towards the outlook.

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 – came in at 49.1 in November, up from October’s 48.5.

While the latest reading was still below the 50.0 mark that separates growth from contraction, it signalled only a modest decrease in activity that was the weakest in the current four-month sequence of decline. Output, meanwhile, rose slightly across the UK as a whole (50.7), driven in large part by strong growth in London.

Businesses in the North West continued to face challenging demand conditions during November, with inflows of new work falling in the region for the seventh month running. Surveyed firms commented on squeezed customer budgets, weak exports and low market confidence.

That said, the rate of decline eased notably from the previous month and was the weakest since July.

Although firms in the North West generally remained hopeful of a rise in business activity over the next 12 months, the degree of confidence softened to a four-month low and was below the national average.

The launch of new products and greater marketing efforts were among the factors expected to support higher output in the year ahead, but firms also voiced concerns about a lack of both confidence and spending power among customers.

Latest data showed a renewed decline in workforce numbers across the North West private sector midway through the final quarter, following an uptick in October. The decrease was centred on the manufacturing sector and only marginal, however.

The result mainly reflected the non-replacement of leavers as firms adjusted to lower demand. Across the UK as a whole, employment fell fractionally in November.

A lack of incoming new orders resulted in a further decrease in backlogs of work across the North West private sector in November. Work-in-hand has now fallen in every month throughout the past one-and-a-half years, in a sign of easing pressure on business capacity. The rate of depletion slowed to the weakest for four months, but it remained solid and quicker than the national average.

The rate of increase in businesses’ costs quickened for a second consecutive month in November. Underlying data showed an easing drag from falling manufacturing purchase prices, alongside still-strong cost pressures in the service sector. Where higher operating expenses were recorded, this was often linked to wage demands. Despite the uptick, however, the rate of input cost inflation in the North West remained one of the lowest nationally and below its long-run average.

November’s survey indicated a moderate rise in average prices charged by firms operating in the North West. The rate of inflation nudged down a notch from that seen in October and was softer than its historical average. It was also the second-weakest among the 12 nations and regions monitored by the survey, ahead of only that recorded in Northern Ireland.

Malcolm Buchanan, chair of NatWest North regional board, said: “These latest PMI numbers provide hope that the North West economy is starting to turn the corner, with firms reporting slower declines in both activity and inflows of new work.

“That said, business expectations towards output in the coming year remain below the norm, with growth in 2024 achievable but unlikely to be strong. The modest outlook for activity, combined with upward pressure on business costs from wages above all else, is feeding through to the labour market.

“However, the reduction in employment in November was only marginal, suggesting that while firms are reluctant to hire, they are also wary of letting too many staff go.”