The Autumn Budget, high borrowing costs and cautious spending negatively impacted business activity across the South West at the end of last year, according to new research.
Regional companies signalled the first fall in business activity for 10 months in December, the NatWest South West Growth Tracker Business Activity Index found.
The data highlighted a moderate decline in new business placed with private sector companies in the region ending a one-year sequence of growth.
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The drop in South West output was the slowest of the nine regions and nations where a contraction was recorded. Growth was sustained in London, the East Midlands and the North East.
According to the tracker, businesses across the West of England trimmed headcounts at the fastest rate in more than four years. Upcoming rises in staff costs caused redundancies and prevented firms from replacing leavers. Businesses also reported rising operating expenses in December.
However, bosses remain confident of a rise in output over the course of the coming 12 months, as marketing efforts and investment are expected to drive growth, NatWest said.
Faye Long, chair of the NatWest South West Regional Board, said: "South West companies ended 2024 on a weaker footing than generally seen throughout the year, but they were optimistic regarding growth prospects in 2025.
"In their view, most of the weakness observed in December stemmed from the Autumn Budget announcement, which caused anxiety among clients and led them to restrict purchases. Local firms reduced output volumes and payroll numbers amid the upcoming increases in employer National Insurance and the minimum wage.
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"Some panellists indicated that their suppliers are already charging more for inputs as a result of future increases in staff costs. A pick-up in cost pressures underpinned a sharper upturn in selling prices at a time when staying competitive is crucial to support sales."
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