Business growth and confidence taking a hit

PRIVATE sector activity growth in the North West slowed to the weakest since April 2013 in August and cracks are forming as business confidence suffers a drop for fifth consecutive month.

This is according to two influential reports published today giving indications of the state of health of business across the North West.

The Lloyds Bank North West Business Activity Index said new business growth softened for the sixth month running, with the latest increase the worst this year so far.
 
The rate of expansion was lower than the UK average, in both cases. Meanwhile, both input and output prices decreased, albeit at modest rates.

The seasonally adjusted posted at 52.1, down from 53.5 in July, thereby indicating a slower rate of expansion in the North West private sector.

The latest reading was the third-weakest out of the 12 regions surveyed and remained below the UK average for the eleventh straight month.

This reflected a sharper contraction in output at manufacturers and a softer expansion at service providers.

Supporting weak output growth, new orders in the North West private sector increased at the worst rate since December last year and one that was slower than the historical average.

The rate of expansion was less pronounced that the UK average. Panellists mentioned the troublesome euro/pound rate causing greater competition in the international market, thereby weighing on total new order growth.

Lloyds Bank area director for SME banking in theNorth West Martyn Kendrick said: “The latest survey data pointed to a slowdown in overall business conditions in the North West in August.

“Activity growth eased to its weakest since April 2013, while new orders increased at the slowest rate so far this year.

“Panellists suggested unfavourable exchange rate movements led to weaker growth. In contrast, employment picked up from July’s 26-month low and was in line with the UK average. On the price front, both input and output prices declined in August helped by lower commodity prices, particularly copper-related products.”

The second survey is the Business Trends report published by accountants and business advisers BDO in the North West.

BDO’s Output Index increased marginally to 104.5 from 104.4 in August, indicating that businesses expect continued robust growth in the latter part of 2015. Strong consumer spending, enabled by rising wages and near-zero inflation, is the driving force behind this.

But cracks are emerging in the longer-term outlook. BDO’s Optimism Index suffered a sharp drop to 101.9, down from 103.3. This is a fifth consecutive monthly drop in business confidence demonstrating that companies are concerned about their prospects beyond 2015.

Manufacturers are particularly concerned, recording their lowest level of confidence – 86.2 – since November 2012. This is dramatically below the 95 mark which indicates growth.

Exporters, already pressured by the continued strength of the pound, are increasingly nervous that economic turmoil in China will start to affect growth around the world, hitting their core markets.

Partner and head of BDO in the North West, Tim Entwistle said: “While the expected continued economic growth is encouraging, falling business confidence suggests we’re approaching a turning point in the economy.

“Policy makers cannot ignore this, otherwise they run the risk of an economic slowdown. Any rumours of a rate rise in the near future must be squashed. Now is not the time to cut household spending, the very thing driving economic growth, or to introduce moves that will strengthen the pound further and hit our exporters.

“We cannot rely on consumer spending and services in the long-term.  Policy makers must focus on steps to rebalance the economy and give support to manufacturers and greater wealth creation in the North and Midlands.”