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Business activity in the South West has contracted as sales fell for a fourth straight month.

According to NatWest's 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 - activity picked up from August's nine-month low of 46.7 to 47.8 in September.

The index has now posted in contraction territory for four successive months. NatWest said across the º£½ÇÊÓƵ, business activity fell for the second straight month, though the rate of contraction remained softer than that seen in the South West.

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Private sector companies in the region recorded a further reduction in overall new business during September. Although, whilst not as "severe" as that seen in August, the bank said the rate of contraction "was solid overall". Tighter client budgets, elevated inflation and weaker confidence all weighed on customer spending, according to panellists.

While some companies expressed hopes that economic conditions will improve and investment in new technology and marketing will aid growth, there were concerns related to tighter financial conditions and the associated pressure on client expenditure going forward.

NatWest’s seasonally adjusted employment index noted workforce numbers at South West private sector firms declined in September at the quickest rate since December 2022. According to panellists, the non-replacement of voluntary leavers and cost control measures had "weighed on recruitment".

Additionally, although inflationary pressures eased to the lowest in 31 months, they remained higher than the historical trend. Firms told researchers they raised their own prices to pass on higher operating expenses to customers. Output charges also rose at a historically strong pace at the national level, albeit one that remained slightly softer than that seen in the South West.

Paul Edwards, chair of the NatWest South West Regional Board, said: "Private sector companies across the South West continued to face challenging market conditions in September, with weak demand leading to a further decline in business activity. High interest rates, the rising cost of living and uncertainty over the economic outlook all weighed on customer spending, with budgets coming under greater scrutiny. While there were signs of overall inflationary pressures easing in September, rates of both input cost inflation and output charge inflation remained elevated by historical standards to underscore how stubborn cost pressures still are.

"This gloomier assessment of the outlook also fed through to confidence, which slipped to the lowest level in 2023 to date. At the same time, efforts to contain costs contributed to the first reduction in employment across the South West for six months. As backlogs of work continued to fall sharply, which points to spare capacity across the region, it's likely that firms could cut back further on output until we see demand revive."