Fifth straight monthly decline in North West business activity

The North West private sector economy remained under pressure as 2023 drew to a close, with the latest NatWest Regional PMI survey showing a fifth straight monthly decline in business activity in December.

Price pressures, meanwhile, picked up, driven in part by rising wages. A combination of reduced workloads and increasing labour costs took a toll on the local labour market as employment fell for the third time in four months.

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 – remained below the 50.0 threshold that separates growth from contraction in December, registering 48.8 from November’s 49.1.

The result contrasted with a second successive monthly increase in activity across the UK as a whole (52.1).

Although firms in the North West recorded a further decrease in new business in December, the rate of decline slowed for the second month running to the weakest since last July and was only marginal.

The reduction in new work was centred on the local manufacturing sector, with services firms reporting an upturn in demand. The UK, as a whole, saw a rise in new business for the first time in six months.

Business expectations in the North West slipped to the lowest for a year in December, going against the UK-wide trend.

Anecdotal evidence highlighted concerns about interest rates, squeezed budgets and the UK economic outlook in general. Nevertheless, the number of firms anticipating a rise in activity over the next 12 months still far exceeded those forecasting a fall.

Reduced workloads led firms in the North West to trim their workforce numbers during December. Where staffing levels fell, companies often commented on the non-replacement of voluntary leavers. Employment in the region has now fallen in three of the past four months.

The pace of job shedding was slightly quicker than in November and broadly in line with the UK average.

As has been the case in every month since June 2022, firms in the North West recorded a decrease in the level of outstanding business (ie orders awaiting completion) in December. The rate of depletion was solid, although it eased for the fourth month in a row to the weakest since last July.

Underlying data indicated a particularly steep drop in backlogs of work in the region’s manufacturing sector.

The final month of 2023 saw an increase in cost pressures faced by firms in the North West as the rate of input price inflation accelerated to the quickest for five months. The result largely reflected rising labour costs, according to reports from surveyed firms, although the renewed rise in manufacturing purchase prices was also a factor.

However, while historically strong, the increase in operating expenses was softer than the national average.

Latest data indicated a solid and accelerated rise in average prices charged for goods and services by firms in the North West. After having slipped to a three-year low in September, the rate of output price inflation ticked up for the second time in three months to its highest since last July. That said, the increase was the third slowest amongst the 12 regions and nations monitored.

Malcolm Buchanan, chair of NatWest North Regional Board, said: “2023 ended in somewhat disappointing fashion, with businesses in the North West recording a further modest fall in activity.

“One positive takeaway was that inflows of new work, which are an indicator of underlying demand and have been in decline since last May, moved closer to stabilisation in December.

“Even so, relatively low business expectations in the region point to weak growth projections for the coming year.

“Lower activity has been compounded by a resurgence in cost pressures, as businesses face growing wage demands and a bottoming-out of raw material prices. Firms are under pressure to trim workforce numbers, resulting in a third decrease in regional employment in four months in December, although anecdotal evidence suggests this is mostly being driven by natural wastage rather than layoffs.”