Amount of new work and sales for region's businesses slows as cost rises hit hard

NatWest’s South West Business Activity shows companies registering smaller rises in sales, with firms mentioning increased costs and global uncertainty weighing on them.

The seasonally adjusted index measures the month-on-month change in the combined output of the region’s manufacturing and service sectors. It fell from 60.3 in April to 55.0 in May. The rate of growth was the softest seen for four months.

Input prices increased at the second-fastest rate on record while the prices charged rose rapidly, but a solid increase in backlogs and efforts to expand capacity helped to drive a further steep increase in employment.

Higher sales were often linked to stronger demand conditions and new client wins, but some firms mentioned that increased global economic uncertainty had dampened the upturn in new orders.

Private sector firms in the region stayed positive about future business activity in May, but their optimism was the second-lowest seen since April 2020.

Survey respondents often commented on planned company expansions amid forecasts of rising customer demand and investment in new products, but concerns over rising costs, higher interest rates and uncertainty over the housing market all weighed on overall confidence.

As has been the case since March 2021, businesses added to their staffing levels. Despite edging down to a three-month low, the rate of job creation remained historically sharp.

Several companies mentioned hiring additional staff to increase capacity and fill outstanding vacancies, but some said recruitment was challenging due to difficulties finding candidates.

Anecdotal evidence suggested material and staff shortages alongside rising intakes of new work had driven the latest increase in unfinished business.

Reports from panel members highlighted that greater costs for energy, food, raw materials, staff and transport had all contributed to an upturn in expenses.

NatWest South West Regional Board chair Paul Edwards said: “The latest PMI data showed a notable loss of growth momentum across the south west private sector.

“Companies are facing a challenging environment of increased global uncertainties, sharply rising costs and supply chain disruption, which are all heavily impacting demand and firms' operations.

“Companies registered the second-quickest upturn in expenses on record, which many are having to pass onto already-squeezed customers amid the cost of living crisis.

“One brighter spot was employment, which continued to expand sharply across the south west and at a rate that exceeded the UK-wide trend."

The headline NatWest South West Business Activity Index