The region’s businesses have experienced the fastest downturn in output in 11 months, new research suggests.
The North East’s manufacturing and services firms reported the sharpest contraction of all 12 UK regions and nations in July, according to the NatWest North East PMI, a seasonally adjusted index that measures month-on-month changes, which fell from 48.3 points to 46.8.
The survey’s findings also highlighted a third successive monthly decline in new work coming in to the region’s private sector firms, albeit at a slower rate than in June. That was against the backdrop of a marginal fall in demand, the first since January, across the UK.
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Despite the negative trends, businesses showed some optimism, as sentiment picked up to its second highest point since January 2022. However, the Future Activity remained below its long-run trend of 64.8, with local firms displaying lower levels of positive sentiment compared with UK levels.
Meanwhile backlogs of work fell for the 19th month running – at a stronger rate of decline than all other regions except for Wales. That meant the region was joined only by the East Midlands in recording job losses, with the rate of cuts stronger than May and broadly in line with the the trend shown over the previous sequence of contraction between June 2022 and March 2023.
Firms said they faced continued input price rises across July extending the inflationary sequence to 38 months. The rate of inflation, while slightly below the UK average in July, was broadly in line with June’s 31-month low but still well above the long running trend.
As a result, companies continued to pass on the costs with price rises for customers. Having eased in June, the rate of charge inflation was level in July and well above the long-run average.
Malcolm Buchanan, chair of the NatWest North Regional Board, said: “The July data corroborated the June findings that the North East private sector has entered a new downturn halfway through 2023, as inflation and rising interest rates have stifled demand. The North East has fared worse than other UK regions, being the only one to record concurrent declines in output, new orders and employment in July.
“The 12-month outlook has brightened, possibly reflecting the steeper-than-expected fall in official UK inflation for June. But the PMI price indices hardly budged in July, suggesting that price pressures remain stubbornly high.”
The survey has been published ahead of a key week of economic data, with monthly unemployment figures released tomorrow and the latest data on inflation on Wednesday.
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