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Birmingham Post
Birmingham Post
Business
Jon Robinson

North West business activity falls for first time since January 2021

Firms across the North West reported a fall in business activity in September, ending a period of growth stretching back over a year-and-a-half, according to new data released by NatWest.

The bank's latest regional figures showed 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 – dropped below the 50.0 threshold that separates growth from contraction for the first time since the third national lockdown in January 2021.

At 49.4, down from August's 51.8, the index signalled a modest rate of contraction that was slightly slower than that seen across the UK as a whole (49.1).

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September saw a further decrease in the level of new business at firms across the North West, indicating a sustained slowdown in underlying demand across the region, NatWest said.

The fall in new work was the third in as many months and attributed by surveyed businesses to growing anxiety among customers and a squeeze on purchasing power due to the rising cost of living, the bank added.

Although only modest, it was the biggest fall in new business since the Covid-19 lockdowns in January 2021. The rate of decline matched that seen across the UK as a whole.

Firms' expectations towards growth prospects in the year ahead weakened at the end of the third quarter. It was the sixth time in the past eight months that a decrease in business confidence has been recorded, with sentiment in September the lowest since the initial Covid-19 wave almost two-and-a-half years ago.

The bank said that anecdotal evidence revealed growing concerns about recession due to persistently high inflation, rising energy costs and increasing interest rates.

Employment levels rose further across the North West private sector in September, continuing a sequence of growth stretching back to March 2021. That said, the pace of job creation was the weakest recorded over this period and below the UK-wide average, with a reduction in manufacturing workforce numbers partly offsetting recruitment across the services economy, NatWest said.

Firms in the North West recorded a further decline in outstanding business (i.e. orders received by not yet completed) in September, reflecting a combination of reduced inflows of new work and a further expansion in staffing capacity. The decline was the fourth in as many months and led by the manufacturing sector. The pace of backlog depletion slowed to the weakest since June, however.

Business costs continued to rise sharply in September, driven by the soaring price of energy and wage pressures. That said, although remaining well above its historical series average, the rate of input cost inflation eased further from May's record high to a 16-month low amid reports of the softening of some raw material prices, the bank said.

Higher input costs once again translated into a rise in prices charged for goods and services in September, as businesses looked to protect profit margins. The rate of output price inflation eased slightly from previous survey period and was fractionally below the UK average, but it nevertheless remained among the quickest in the series history.

Malcolm Buchanan, chair of North Regional Board, said: "The North West’s economic rebound, seen since the easing of restrictions in the wake of the third national lockdown at the start of 2021, fizzled out in September.

"The third quarter ended with falls in both business activity and inflows of new work, amid reports of growing caution among customers and a squeeze on purchasing power from sharply rising prices.

"With concerns around the trajectory of interest rates adding to the gloomy outlook, business expectations fell to the lowest since the initial Covid-19 shock.

"The labour market continued to provide a bright spot, but even here there are signs of a slowdown as employment growth slipped to a 19-month low.

"Although the PMI data showed price pressures moderating slightly in September, they remain uncomfortably high and indicate the cost of living crisis still has a lot further to run."

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