October brought to an end a 20-month run of business expansion in Yorkshire and the Humber, according to a key indicator.
The region’s economy slipped into contraction as the fourth quarter of the year began, having remained tentatively on the front foot as other monitored areas of the UK slipped back from August. The analysys comes from the latest regional PMI dataset delivered by NatWest’s Business Activity Index.
The seasonally adjusted barometer measures the month-on-month change in the combined output of the region’s manufacturing and service sectors, with October seeing it fall below the 50.0 no change mark, from September's 51.4 to 48.8.
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It brought about the first reduction in private sector business activity across Yorkshire & Humber since January 2021. The manufacturing sector provided the biggest drag on the region's performance in October, although a softening trend was also seen across services. Where lower activity levels were reported, companies generally commented on weakness in demand.
Malcolm Buchanan, chair of NatWest North Regional Board, said: “Yorkshire & Humber's private sector moved into contraction at the start of the fourth quarter. Until October, the region had been one of the UK's top performers and managed to defy the broader national trend, which had shown contraction in both September and August.
"October's weakness was primarily reflective of the softening in demand conditions, with high inflation, recession fears and cost pressures impacting sales volumes. This fed through to business confidence, which fell to its lowest level since April 2020. Nevertheless, business sentiment across Yorkshire & Humber firms was the greatest across the monitored UK areas, signalling some resilience, at least on a relative scale."
October survey data signalled a drop in new orders received by private sector firms in Yorkshire & Humber. The decrease was solid and the fastest since May 2020. The reduction in sales was broad-based across manufacturers and service providers.
The Future Activity Index fell to its lowest level since April 2020, signalling a historically weak level of confidence among private sector firms. The prospect of a UK recession, high inflation and weak consumer confidence were among the factors that drove thedownbeat assessment.
That said, of the 12 parts of the UK monitored by the survey, Yorkshire & Humber firms recorded the strongest level of confidence towards the year ahead.
Private sector companies continued to expand their workforce numbers during the month, although the rate of job creation was the slowest seen across the current expansion sequence which began in February 2021.
While some companies noted the importance of retaining talent and filling vacancies where possible, voluntary leavers, temporary staff reductions and hiring freezes weighed on the upturn.
The seasonally adjusted Outstanding Business Index posted above the 50.0 no-change mark in October for the first time since June, signalling a renewed increase in work backlogs The rate of backlog accumulation was only marginal overall and in line with that seen at the UK level.
Another month of elevated cost pressures was also reported. Weakness in the pound, high energy, fuel and labour costs, as well as raw material price hikes were mentioned by survey respondents, leading to prices rising for the provision of goods and services.
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