Grim news for region in latest economic review
South West business activity has declined for first time since January, according to a new report.
The NatWest South Business Activity Index found that business activity dropped last month.
Though only slight, it marked the first reduction in private sector activity across the South West since January, and contrasted with a solid expansion of output across the UK as a whole.
The fresh fall in activity was linked to weaker demand conditions, with new business also contracting for the first time in five months.
Inflationary pressures meanwhile eased, with both input costs and selling prices rising at the weakest rates in over two years.
Encouragingly, optimism around the 12-month outlook for output strengthened, which supported a solid rise in employment.
After rising in each of the previous four months, the amount of new business placed with private sector firms in the South West declined during June.
Firms that registered lower sales often linked this to squeezed client budgets due to the rising cost of living and tighter financial conditions. There were also reports of customers adopting more cautious inventory policies due to economic uncertainty.
Although companies reported weaker output and new order trends in June, optimism around the year-ahead improved to its highest for three months. Firms anticipated that forecasts of stronger economic conditions, planned company expansions and new project starts could support growth of output over the next 12 months. That said, the overall degree of positive sentiment remained below the national average, with some firms expressing concerns over the impact of higher interest rates on client spending.
The seasonally adjusted Employment Index posted above the neutral 50.0 threshold in June, signalling a third consecutive monthly rise in staff numbers at private sector firms in the South West.
The sustained upturn in staffing levels helped to improve capacity and enabled South West private sector firms to reduce their level of outstanding business for the fourth month in a row in June.
June data pointed to a further sharp rise in operating expenses faced by South West private sector firms.
Where greater cost burdens were reported, companies often mentioned increased staff wages and utility payments. However, the overall rate of inflation edged down to a 28-month low.
Average input costs also rose at a weaker pace across the UK as a whole, and one that was slightly softer than that seen in the South West.
Paul Edwards, chair of the NatWest South West Regional Board, said: “The South West’s economy had a disappointing end to the second quarter, with businesses noting lower levels of activity and new work for the first time in five months. Greater pressure on client budgets due to the rising cost of living and higher borrowing costs had reportedly strained sales, while there were also reports of customers reining in spending due to the weaker economic climate. However, optimism around the 12-month outlook for output improved to a three-month high. This upbeat mood supported a further strong rise in employment, which in turn led to a steeper fall in backlogs. Cost pressures meanwhile eased to their weakest in over two years, adding to hopes that the worst of the cost of living crisis is now behind us.”
