BUSINESSES in the south west are not feeling good about the future as they received less new work and costs continued to rise.

NatWest’s South West PMI Business Activity Index measures the month-on-month change in the combined output of the region’s manufacturing and service sectors. It rose very slightly - from 51.2 in June to 51.3 - in July.

The latest figures signalled the end of a 16-month period of expansion for firms in the area as customers placed fewer new orders as confidence in the market fell and economic uncertaint increased.

The level of optimism among businesses in the south west fell to the lowest level seen since the index series began in July 2012.

While many firms are expecting stronger customer demand and new products to support growth, there were often concerns about intense inflationary pressure, tighter financial conditions and a slowing global economy dampening activity levels over the next 12 months.

But it’s not all bad news – private sector workforce numbers increased for the 17th month in a row even as some companies struggled to find suitable replacement staff.

Anecdotal evidence suggested that weaker inflows of new work allowed companies to tackle their backlogs of unfinished business.

Although south west private sector firms continued to see a sharp rise in average input costs during July, the rate of inflation softened for the second month in a row.

Notably, the rate of increase was the slowest recorded since September 2021 and weaker than the national trend. Where higher input costs were reported, firms often cited greater prices for raw materials, fuel, energy and staff.

Panel members often mentioned raising their prices in order to pass through higher operating expenses to customers.

Paul Edwards is chair of the NatWest South West Regional Board.

He said: “The latest data highlighted an increasingly gloomy outlook for the region's private sector, with new business dropping for the first time in nearly a year-and-a-half, and business activity remaining muted.

“Confidence regarding the year-ahead outlook for output fell to its lowest since the series began a decade ago, underscoring heightened concerns over the cost-of-living crisis, rising interest rates and a slowing global economy.

"There were some bright spots, however, as firms continued to add to their workforce numbers, and inflationary pressures showed signs of easing.

“That said, mounting headwinds around the outlook suggest that firms may cut back on capacity in the months ahead as firms juggle sharply rising costs and weakening demand."