South West firms saw a sustained drop in sales amid higher borrowing costs and increased economic uncertainty, according to a new NatWest report.
The bank said its South 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 –saw a second consecutive month of decline in July.
NatWest said this was in contrast to a “marginal expansion” of business activity across the rest of the country.
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The region’s businesses registered a fall in new orders according to the survey. Those which took part said a general slowdown in market conditions and higher interest rates had weighed on customer spending.
NatWest said that employment across the South West remained “a bright spot”, with the latest data revealing a fourth successive monthly increase in overall workforce numbers. The rate of job creation edged up to a three-month high and was the quickest seen across all 12 monitored UK regions. There were frequent reports of businesses adding to their payrolls in anticipation of new projects and growth plans for the year ahead.
Private sector companies based in the South West registered a further increase in average input costs during July, with wages, rent and energy costs cited in particular. The rate of cost inflation in the South West was slightly quicker than the national average.
Meanwhile, firms’ optimism around the 12-month outlook for output improved to a four-month high, underpinned by expectations that new project starts, planned company expansions and stronger economic conditions will help to boost activity.
Paul Edwards, chair of NatWest’s South West regional board, said: “”Private sector firms in the South West remained under pressure at the start of the third quarter, as a modest decline in new work led to another slight drop in business activity. Higher borrowing costs and increased economic uncertainty meant that client budgets are not only being squeezed, but businesses are more hesitant to commit to orders right now.
“The prices data show that inflationary pressure may be stickier than anticipated, partly due to stronger wage inflation, although this contrasts with private sector firms feeling more upbeat when assessing the 12-month outlook.”
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