South West business activity falls for first time since July 2016 – NatWest data states

The latest NatWest PMI data has pointed to a renewed fall in business activity across the South West private sector in November.

The decline coincided with the first reduction in new business for nearly two and a half years, which led firms to work through their backlogs at the quickest pace since last December.

The data has showed that softer demand conditions weighed on job creation, while business confidence towards the one-year outlook slipped to a 17 month low.

Prices data meanwhile signalled a further sharp rise in input costs, which prompted companies to raise their charges further.

Chris Preston, Chair, NatWest South West Regional Board, commented: “The latest set of Natwest PMI data for the South West private sector painted a disappointing picture, with both business activity and new orders declining for the first time in over two years.

“Weaker demand conditions and Brexit-related uncertainty meanwhile pushed business confidence down to its lowest level for nearly a year-and-a-half, which translated into only a marginal rise in staffing levels during November.

“A further sharp rise in costs meanwhile led firms to raise their charges again, which may dampen sales further in the coming months unless confidence and activity picks up.”

The headline South West Business Activity Index – a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – registered below the neutral 50.0 level at 49.1 in November, down from 52.0 in October.

Though only slight, this signalled the first reduction in South West private sector output for 28 months. Across the UK as a whole, activity rose marginally, with the rate of growth easing to the weakest in the current period of expansion that began in August 2016.

Sector data for the region showed that weakness emanated from the service sector, which saw a decline in business activity, as manufacturing output continued to expand.

In line with the trend for activity, new business fell across private sector firms in the South West during November. Though only slight, it was the first time that sales declined since mid-2016. The trend in new business also weakened at the national level as, although still rising, the rate of growth eased to a 28-month low.

Reduced amounts of new orders enabled firms to work through their unfinished business in November. Though moderate, the rate of backlog depletion was the quickest recorded for just under one year. At the same time, firms expressed a relatively cautious approach to hiring, recording only a marginal upturn in staff numbers that was weaker than the UK trend.

South West private sector firms signalled a further rise in input costs in November. Despite easing to a seven-month low, the rate of inflation remained sharp and was slightly faster than that seen across the UK as a whole. Consequently, firms continued to raise their charges solidly.

Weaker demand conditions, supply chain difficulties and Brexit-related uncertainty all dampened business confidence midway through the fourth quarter. Notably, South West private sector firms expressed the lowest level of optimism for nearly a year-and-a-half in November. Data showed that the decline was predominantly driven by a negative outlook across the service sector.