Business confidence in the South West has fallen amid “a renewed slowdown” of growth and a sharp rise in input costs, according to a new NatWest report.
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 fell from an 11-month high in May.
NatWest said the slowdown coincided with a weaker upturn in new business, which increased at a similarly mild rate. Employment growth also moderated, though a further rise in staff numbers helped to deplete backlogs of work.
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The rate of input cost inflation quickened for the first time since January, driving a further increase in output charges.
The survey found private sector firms in the South West were generally optimistic that output would rise over the next 12 months during May. Upbeat projections for the year ahead were widely linked to hopes of stronger economic conditions and improvements in sales.
However, the level of positive sentiment slipped to the lowest seen in 2023 so far, with some firms expressing concerns over the rising cost of living and subsequent squeeze on customer budgets.
Staffing levels at South West private sector businesses increased for the third time in the past four months in May. The rate of job creation slowed from April, but remained solid overall. Furthermore, the rate of payroll growth remained quicker than that seen at the national level.
Companies that hired additional workers often mentioned efforts to fill vacancies and capacity expansion plans. Lower amounts of work-in-hand (but not yet completed) were often linked to efficiency gains and higher staff numbers. Some companies noted relatively muted sales had enabled them to work through outstanding orders.
Average input prices across the South West private sector continued to rise sharply midway through the second quarter of the year. The rate of inflation picked up for the first time in four months and was historically sharp overall. Companies frequently mentioned higher wage costs and increased prices for food and raw materials.
South West private sector firms raised their average selling prices for the twenty-ninth month in a row in May.
Paul Edwards, chair of NatWest’s South West regional board, said: "Uncertainty over the outlook and marked cost pressures constrained the performance of the sector, and pushed down business confidence to a five-month low. Notably, the rate of input cost inflation across the region remained rapid overall, having picked up from April, and meant firms had to hike their own prices again. Until we see cost pressures cool and an improvement in market confidence, it will be challenging for the sector to maintain a strong recovery."
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