Business activity and new orders both rose at the weakest rates for three months, while companies signalled the slowest increase in headcounts since June. At the same time, firms reported a further steep increase in input costs, with the rate of inflation holding close to September's recent high. Consequently, businesses raised their output charges solidly.
The headline South West Business Activity Index – a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – posted 52.0 in October, down from a six-month high of 53.9 in September. The latest reading pointed to only a modest rise in business activity at South West private sector firms that was the slowest seen since July. That said, business activity rose at a similar pace across the UK as a whole.
Data broken down by sector indicated that activity rose across manufacturers and service providers in the region, with the former registering the steeper rate of growth.
The amount of new orders placed with South West private sector firms increased for the twenty-seventh month running in October. That said, the pace of expansion was the slowest seen since July and below its long-run trend. However, growth in new orders continued to outpace that seen across the UK as a whole.
In line with softer rises in activity and new work, South West private sector firms increased their headcounts at a slower rate in October. Notably, the latest increase in payrolls was the least marked for four months.
The amount of unfinished work at South West private sector firms also rose in October. However, the pace of accumulation softened since September and was moderate.
Average input costs faced by South West private sector businesses continued to rise sharply at the start of the final quarter of 2018. This was despite the rate of inflation easing slightly from September's 18-month high. As a result, firms raised their prices charged again in October, and at the same solid pace that was recorded in the previous month.
Private sector firms in the South West maintained a firmly optimistic outlook with regard to their growth prospects over the coming 12-month period. This was despite the degree of positive sentiment slipping from September. Confidence was commonly linked to ongoing company expansions, new marketing strategies and the introduction of new products.
Chris Preston, Chair, NatWest South West Regional Board, commented:
“The latest batch of NatWest PMI data signalled a disappointing start to the fourth quarter for the South West. With firms reporting weaker rises in activity, new business and employment, the figures point to a renewed slowdown in growth momentum across the region after a solid September performance. However, this is similar to wider UK trends, as demand conditions appear to have softened at the national level at the start of the fourth quarter.
“Another key concern is the sharp increase in input costs in the South West, which was also apparent across all other UK regions. As a result, companies raised their charges further, though signs of softer client demand could limit the extent to which firms can raise their prices in the future, which does not bode well for their margins.”