Confidence among South West firms for the year ahead has reached its highest level for eight months according to a new Natwest report, despite output and new work continuing to decline at the start of the year.
The bank’s South West 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 - signalled a sixth successive monthly decline in activity.
Bosses frequently attributed the drop to weaker demand conditions, with new orders are also falling at a solid pace. The data pointed to a sustained fall in new work placed with private sector firms during January. Those surveyed mentioned clients had looked to cut back or delay spending due to rising costs and uncertainty over the outlook.
Despite the decline in orders and activities companies in the region expressed greater optimism towards the 12-month outlook for output at the start of the year.
Paul Edwards, chair of the NatWest South West Regional Board, said it was “encouraging” to see business confidence improving.
He added: “While this bodes well for future growth expectations, it will also be important to monitor whether there will be an easing of inflationary pressures in the months ahead, which would be much welcome news amid the ongoing cost of living crisis.”
New product releases, planned company expansions and hopes of new clients wins and stronger export sales were all projected to lift activity over the next year.
NatWest said employment at South West firms had fallen for the second straight month, but the rate of job shedding eased to a modest pace. Where lower workforce numbers were reported, firms generally attributed this to the non-replacement of voluntary leavers, often due to weaker economic conditions, and difficulties recruiting suitable staff.
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The study also found a further decline in backlogs of work, average. Anecdotal evidence suggested that lower intakes of new work had enabled firms to process and complete unfinished business, while there were also mentions of increased staff efficiency.
Greater staffing costs, driven by the higher cost of living, and increased costs for utilities, fuel, food and materials were cited by respondents as having contributed to the latest rise in operating expenses.
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