Business growth slowed across the South West in September, with firms noting slower increases in both business activity and new orders, according to the headline NatWest South West Business Activity Index.
The latest data has signalled a rise in new orders placed with South West private sector companies in September, as has been the case throughout the third quarter. But the rate of growth was the softest seen over this period. Firms that recorded higher sales mentioned that client demand continued to pick up since the easing of lockdown measures and the resumption of operations.
New business increased at a similarly marked rate across the UK as a whole.
The PMI is a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors. It fell from 59.3 in August to 54.4, to signal a third successive monthly rise in business activity across the region. Though solid, the rate of expansion was notably slower than those seen in the prior two months, to suggest that growth momentum has softened as the sector continues to recover from the coronavirus outbreak.
Paul Edwards, Chairman, NatWest South West Regional Board, said: “The South West's economic recovery lost steam in September, with firms registering softer rises in both output and new work. At the same time, a lack of pressure on capacity and efforts to cut costs led to a further drop in employment, though the rate of job shedding remained less severe than the national trend.
“Although growth momentum softened slightly, South West firms were more upbeat than the average UK business regarding future activity. This could be due to the fact that the number of virus cases in the South West remains relatively low compared to elsewhere in the UK, and there are no current plans for a retightening of local restrictions. Nonetheless, rising virus case numbers across the UK as a whole, the potential for stricter national public health measures, as well as worries over Brexit, continue to create a challenging outlook for firms."
The Future Activity Index remained comfortably above the neutral 50.0 level to indicate that South West private sector firms generally anticipate an expansion of output over the next year. The degree of optimism improved slightly since August, and remained above the long-run series average. Confidence was generally attributed to expectations that client demand and activity will recover once the pandemic is under control.
At the national level, the level of positive sentiment softened slightly from the previous month and was weaker than that seen in the South West.
September survey data signalled a softer, but still marked, reduction in South West private sector employment. Notably, it was the weakest fall in payroll numbers since the current period of job shedding began in March. Companies often mentioned that the latest drop in staffing levels was due to the winding down of the government’s furlough scheme and company restructuring amid efforts to cut costs.
Although the rate of job cuts also eased at the UK level, the rate of decline remained sharper than that seen in the South West.
Although employment continued on a downward trend, South West private sector firms had more than sufficient capacity to meet demand. This was highlighted by a further drop in the level of work-in-hand (but not yet completed), with the rate of depletion little-changed from August and solid overall.
In contrast, unfinished workloads across the UK as a whole rose for the first time in two years, albeit only slightly.
Input prices faced by South West private sector companies rose for the fourth month running in September. Although not as marked as those seen in the previous two months, the rate of inflation remained sharp overall. Firms frequently mentioned that greater staffing costs and supplier price hikes had pushed up expenses.
Average cost burdens also rose across the UK as a whole, though the rate of inflation remained softer than that seen across the South West.
After a modest increase in August, prices charged by South West private sector firms fell at the end of the third quarter. Some firms mentioned lowering their selling prices as part of efforts to stimulate sales. That said, the rate of discounting was only marginal.
Output charges also fell at the UK level in September, and at a quicker rate than seen in the South West.
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