Business activity is down for a third straight month as demand continues to weaken across Yorkshire and Humber.
The reduction also brought a first fall in employment for the first time since January 2021 as cloth is cut accordingly.
The headline NatWest Yorkshire & Humber PMI Business Activity Index – a seasonally adjusted barometer that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – was unchanged from November's 22-month low of 48.7 in December. And it was slightly below the UK average of 49.
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Yorkshire and Humber firms recorded a third successive decline in new order intakes during December. Inflationary pressures and hesitancy among clients reportedly contributed to a weakening in demand. Private sector businesses in the manufacturing sector recorded the more marked drop in new sales.
While the overall rate of decline was the slowest in three months, it was among the strongest seen across the 12 monitored UK regions.
Private sector companies do, however, remain strongly optimistic towards the outlook for the next 12 months, as shown by the Future Activity Index recording well above the 50 mark. Business expansion plans, new products and expected market share gains underpinned confidence. On a regional basis, only the South East recorded a stronger level of optimism.
That said, the level of positive sentiment was below that seen across the series average, compiled since 2012.
Malcolm Buchanan, chair of NatWest North Regional Board, said: “Yorkshire and Humber's private sector saw activity levels fall once again in December, rounding off a poor quarter as weak demand, uncertainty and elevated inflationary pressures combined to drive the region's economy into contraction.
"Prolonged weakness in demand led companies to reduce their employment for the first time in nearly two years as adjustments were made to the worsening economic environment.
"Nevertheless, we saw businesses across the region remain more optimistic than their peers in most other parts of the UK, while rates of input cost and output price inflation slowed to 20-month lows. These small positives from the December survey provide some hope that the region's economy may improve in 2023."
Overall, the decrease in employment was mild, but slightly quicker than that seen for the UK as a whole, with anecdotal evidence of leavers not being replaced.
Following two successive months of increased capacity pressures, December survey data signalled easing constraints as backlogs of work returned to contraction. Moreover, the reduction in outstanding business was the quickest in two-and-a-half years.
According to panellists, reduced new order intakes allowed firms to work through it.
Another steep monthly increase in operating costs was registered in the month December. Inflationary pressures were often linked with greater energy and raw material prices. That said, the rate of inflation slowed to a 20-month low amid reports of certain items coming down in price.
In line with the trend in operating costs, December survey data signalled a softer rate of increase in selling prices. Overall, the rate of output charge inflation was the weakest since April 2021, but sharp nonetheless. Higher prices charged for goods and services generally reflected the pass-through of greater expenses.
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