Confidence among business owners in the South West has dropped as firms in the region come under increasing pressure from rising inflation and a slowing of the global economy, a new report has revealed.
The amount of new work received by the West Country's private sector firms fell during July - ending a 16-month period of expansion - according to the research from NatWest.
The bank's 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 – rose only fractionally from 51.2 in June to 51.3 in July.
Despite business output expanding modestly over the period, it was at a much weaker rate than seen earlier on in 2022. Lower amounts of new business were linked to sharply rising costs and reduced market confidence amid greater economic uncertainty.
“The latest PMI survey data for the South West highlighted an increasingly gloomy outlook for the region's private sector, with new business dropping for the first time in nearly a year-and-a-half, and business activity remaining muted," said Paul Edwards, chair, NatWest South West Regional Board.
"Furthermore, confidence regarding the year-ahead outlook for output fell to its lowest since the series began a decade ago, underscoring heightened concerns over the cost-of-living crisis, rising interest rates and a slowing global economy."
Optimism among businesses fell to the lowest level seen since the series began in July 2012. While many firms said they expected stronger customer demand and new products to support growth, there were concerns that intense inflationary pressure, tighter financial conditions and a slowing global economy could dampen activity levels over the next 12 months.
Companies in the region continued to recruit over the period, however, NatWest said. Workforce numbers at South West firms expanded for the 17th month running in July - but the level of job creation was the softest seen over the period and weaker than the UK-wide trend.
Higher employment was generally linked to the filling of vacancies and efforts to expand capacity. However, there were some reports of difficulties finding suitable replacement staff and greater efforts to contain costs.
South West companies said they saw a "sharp" rise costs during July. Where higher input costs were reported, businesses often cited greater prices for raw materials, fuel, energy and staff.
Mr Edwards added: "There were some bright spots, however, as firms continued to add to their workforce numbers, and inflationary pressures showed signs of easing as both input costs and output charges rose at softer rates. That said, mounting headwinds around the outlook suggest that firms may cut back on capacity in the months ahead as firms juggle sharply rising costs and weakening demand."
