Business confidence takes a hit in the South West

Business growth and confidence in the South West has slowed in the South West according to a new survey.

The NatWest South West Business Activity Index fell from an 11-month high of 52.9 in April to 51.7 in May.

Although this marked an expansion of overall business activity for the fourth successive month, the rate of growth was modest and softer than that seen across the UK as a whole.

The slowdown coincided with a weaker upturn in new business.

Employment growth also slowed down, though a further rise in staff numbers helped to deplete backlogs of work. The rate of input cost inflation quickened for the first time since January, driving a further increase in output charges.

The new business Index signalled an increase in total new orders received by South West private sector firms for the fourth successive month in May.

Businesses that experienced higher sales often attributed this to firmer demand conditions and new marketing strategies.

The upturn was also weaker that seen at the national level, as has been the case in each of the past four months.

Private sector firms in the South West were generally optimistic that output would rise over the next 12 months during May.

Upbeat projections for the year ahead were widely linked to hopes of stronger economic conditions and improvements in sales.

The level of positive sentiment slipped to the lowest seen in 2023 so far, however, and was weaker than the series average.

Some firms expressed concerns over the rising cost of living and subsequent squeeze on customer budgets. Business confidence in the region was also softer than that seen on average across the UK as a whole.

Staffing levels at South West private sector businesses increased for the third time in the past four months in May. The rate of job creation slowed from April, but remained solid overall.

Companies that hired additional workers often mentioned efforts to fill vacancies and capacity expansion plans.

Average input prices across the South West private sector continued to rise sharply midway through the second quarter of the year. The rate of inflation picked up for the first time in four months and was historically sharp overall. Companies frequently mentioned higher wage costs and increased prices for food and raw materials.

Operating expenses rose at an identical and rapid pace across the UK as a whole.

South West private sector firms raised their average selling prices for the twenty-ninth month in a row in May.

A softer upturn in selling prices was meanwhile seen at the UK level, and one that was broadly in line with that seen in the South West.

Paul Edwards, chair of the NatWest South West Regional Board, said: “After posting the best growth for nearly a year in April, the latest PMI data for the South West point to a renewed slowdown in momentum across the region in May. Companies registered softer upturns in output and new orders, which translated into a weaker rise in employment.

“Uncertainty over the outlook and marked cost pressures constrained the performance of the sector, and pushed down business confidence to a five-month low.

“Notably, the rate of input cost inflation across the region remained rapid overall, having picked up from April, and meant firms had to hike their own prices again. Until we see cost pressures cool and an improvement in market confidence, it will be challenging for the sector to maintain a strong recovery.”