Business activity among South West firms dropped for the first time in a year and amid uncertainty around the economic outlook and subsequent cuts to client spending, a new report has revealed.
Private sector firms operating in the region signalled a second successive monthly reduction in overall new work during August, according to the research from NatWest.
The bank said its index measuring month-on-month change in the combined output of the region’s manufacturing and service sectors – fell from 51.3 in July and below the crucial 50.0 no-change threshold.
It added the rate of decline was the quickest it had seen since January 2021 and “solid”, contrasted with only a fractional drop in new business across the UK as a whole.
Meanwhile there was a “notable slowdown” in the rate of job creation across the South West private sector last month.
While employment rose at a “marginal pace”, this was the weakest seen since the current period of expansion began 18 months ago.
Some firms surveyed for the study said they took on extra workers to help expand capacity, while others mentioned difficulties replacing voluntary leavers and efforts to contain costs.
Of the 12 monitored UK regions, only the North East registered a weaker performance in August, with a decline in headcounts.
Average operating expenses faced by private sector companies in the South West rose for the 27th month running. Though rapid overall, the rate of inflation edged down to a 15-month low and was not quite as sharp as that seen at the national level.
Higher costs for fuel, energy, wages and raw materials were all cited by panellists in the latest survey period. Firms continued to increase output charges, despite the rate of inflation edging down to a six-month low.
Natwest said panel members frequently reported partly passing on additional cost burdens to clients in the form of higher selling prices.
Paul Edwards, chair of Natwest South West regional board, said: “South West private sector firms registered a renewed fall in business activity during August as sales dropped for the second month in a row.
Firms often blamed the weaker business environment on sharply rising costs and fears that the economy is sliding into a recession, which has led clients to cut back on spending.
“As a result, employment growth near-stalled in August amid signs of spare capacity, while confidence around the outlook fell to its lowest on record. Underlying inflationary pressure reduced in August, but with energy prices continuing to rise this is a continued and growing source of concern for most businesses and the reason why we are working to support them through this difficult time.”
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