Business activity falls for fourth consecutive month
The South West private sector saw a further decline in business activity in September, as new orders fell for the fourth month in a row. The NatWest South West PMI Business Activity Index, which measures the monthly change in the combined output of the region’s manufacturing and service sectors, rose slightly from August’s nine-month low of 46.7 to 47.8 in September. However, it remained below the 50.0 threshold that separates expansion from contraction. The index has been in negative territory since June, indicating a sustained downturn in the region’s economy.
The South West underperformed the UK as a whole, where business activity also contracted for the second consecutive month, but at a softer pace than in the region. The NatWest UK PMI Business Activity Index edged up from 49.6 in August to 49.8 in September.
Weak demand and high inflation weigh on customer spending
According to the survey respondents, the main factors behind the drop in new orders were tighter client budgets, high inflation and low confidence. Customers were reluctant to spend amid rising interest rates, the increasing cost of living and uncertainty over the economic outlook. Some firms also reported delays or cancellations of projects due to supply chain disruptions and labour shortages.
The South West recorded a sharper fall in new orders than the UK average, indicating a more severe impact of the challenging market conditions on the region’s businesses.
Employment and confidence decline as cost pressures persist
The weak demand and low profitability led to a reduction in employment across the South West private sector in September. The NatWest South West PMI Employment Index fell from 50.1 in August to 48.9 in September, signalling the first decline in workforce numbers since March and the fastest rate of job shedding since December 2022. Firms cited cost control measures and voluntary staff turnover as the main reasons for cutting jobs.
The outlook for the next 12 months also deteriorated, as the NatWest South West PMI Business Expectations Index dropped from 60.4 in August to 58.5 in September, the lowest level since January. Although most firms still expected business activity to increase in the year ahead, some expressed concerns about the tight financial conditions and their impact on customer spending.
Meanwhile, inflationary pressures eased slightly but remained high by historical standards. The NatWest South West PMI Input Prices Index declined from 66.9 in August to 65.7 in September, the lowest since June 2020 but still well above the long-run average. Firms faced higher costs for fuel, energy, staff and raw materials.
To pass on some of these costs to customers, firms raised their output prices at a strong pace. The NatWest South West PMI Output Prices Index slipped from 60.3 in August to 59.5 in September, but stayed above its historical average.
