Business activity in the North has fallen at its fastest rate in 18 months as fears of a recession mount, according to a closely-watched business survey.
The NatWest North East Business Activity Index, which measures changes in the region’s manufacturing and service sectors, fell for the second month in a row to a score of 43.4, singling out the North East as the weakest economy in the UK. Lower sales volumes, price pressures and recession risks sparked the steepest fall in activity since January 2021, NatWest said.
Companies in the region reported a sixth consecutive fall in winning new business and the North East’s trend for total sales was the worst of the 12 monitored UK regions. The survey also found businesses in the region reporting substantial increases in costs, with anecdotal evidence pointing to greater energy, food, insurance, staff and raw material prices.
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The survey indicated a slight fall in private sector employment and, for the first time in more than two years, North East companies were downbeat towards the year-ahead outlook.
Malcolm Buchanan, chair of the NatWest North regional board, said: “Economic conditions in the North East remained difficult in August, with companies seeing new business shrink further as clients cut back on spending due to elevated inflation and the cost-of-living crisis.
“The drop in sales was the sharpest recorded by the PMI survey since May 2020, which in turn led to the fastest decline in output since the start of 2021.
“Although contractions in both business activity and sales were not restricted to the North East, as indicated by the vast majority of UK regions recording downturns, this area was the weakest link in August.
“Another challenge faced by local firms was an additional increase in their outlays during August.
“The rate of cost inflation eased to a one-year low, but was sharper than any seen prior to May 2021.
“Consequently, prices charged for goods and services rose again, which will likely drag down demand in the near term as households trim their expenses to be able to afford essentials.”
The NatWest survey was carried out before this week’s announcement on help for businesses to pay energy bills.
Business groups broadly welcomed the package unveiled by new Prime Minister Liz Truss, though fears remain over high costs for many firms and falling spending power among their customers.
The pound last week slipped to 37-year-low against the dollar as UK investors swallowed the prospect of huge borrowing to fund a package to deal with soaring energy bills.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD) has said that the UK had one of the largest falls in employment among the least well-educated because of the pandemic and one of the largest falls in real wages in developed countries between 2021 and 2022.
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