North West output slows to a fraction

North West output growth slowed to fractional pace in July as new business fell for a third month in a row.

The latest NatWest PMI report, published today, says the slowdown also softened job creation as well. Output prices rose at the weakest rate in over three years.

However, despite this firms in the region gave an improved outlook for activity in the year ahead.

The headline North West Business Activity Index – a seasonally adjusted index that measures the change in the combined output of the region’s manufacturing and service sectors – fell from 51.4 in June to 50.2 in July.

The overall increase in output was fractional, and the softest recorded in three years. In addition, the region dropped below the UK-wide average for the first time since last October.

Only the services sector reported higher activity during July. Manufacturers reduced production at a moderate pace.

A decline in new orders in the manufacturing sector contributed to a third successive monthly drop in demand in the North West.

According to the report some businesses continued to cite de-stocking at customers as a reason for lower sales. However, services companies saw a slight rise in new business over the month.

The decline was again centred on manufacturers, which broadly reflected the trend for the country.

The rate of sales decline was weaker than in June which, combined with only a marginal upturn in output, led to a decelerated fall in backlogs of work at private sector firms.

Employment growth was also softer in July, and moderate, according to the report. A reduction in manufacturing workers partly offset higher employment at service providers.

Businesses in the North West raised their selling charges only modestly at the start of the third quarter, as falling demand weighed on some firms' pricing decisions. This brought the rate of inflation down to its lowest since June 2016.

On the flip side, input costs also rose at the softest pace in this period. The rate of inflation continued the moderating trend seen over the course of the year so far, but remained sharp overall.

Business expectations also improved for the first time in three months. Firms noted that new products, company acquisitions and mergers are likely to drive growth in the coming year, with some also hoping for greater market stability after the Brexit date.

Richard Topliss, who chairs the NatWest North regional board, said:  “The North West private sector lost further growth momentum at the beginning of the third quarter, according to latest survey results.

“Business activity was dampened by another, if marginal, fall in demand for goods and services, leading to only a slight increase in output.

“While the previous two decreases in new orders presented some worries for the region, the fact that activity is now nearing contraction territory amplifies these concerns.

“The decline was again centred on manufacturers, which broadly reflected the trend for the country. That said, services firms recorded a subdued rate of growth, suggesting that the slowdown may spread to this sector in the near future if conditions do not rebound.

“Nevertheless, the forward-looking sentiment indicator was up notably in July, with a number of businesses still predicting strong organic growth while also mentioning hopes of a stable Brexit resolution.”

The survey comes as the latest GDP figured showed that the UK economy shrank by 0.2 per cent in the second quarter of this year.

Alpesh Paleja, CBI lead economist, said: “The contraction in economic activity over Q2 is concerning, but much of this is due to a number of one-off factors.

“Growth has been pushed down by an unwind of stockpiling and car manufacturers shifting their seasonal shutdowns.

“Nonetheless, it’s clear from our business surveys that underlying momentum remains lukewarm, choked by a combination of slower global growth and Brexit uncertainty. As a result, business sentiment is dire.

“Securing a Brexit deal before the October 31 deadline is the first step to revving up the economy. The second is re-focusing attention on vital domestic priorities – such as pressing ahead with key infrastructure projects – to boost productivity and growth potential over the longer-term.”

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), added: “The latest figures suggest that the UK economy hit the buffers in the second quarter.

“We’re seeing the unwinding of heightened levels of stockpiling, growing anxiety over the prospect of a no deal exit and moderating global growth having an increasingly chilling effect on economic activity.

“The marked contraction in manufacturing production is disappointing, but unsurprising, given the current downward pressure on activity in the sector from the running down of excess inventories, weakening automotive production and tougher global trading conditions.

“The slowdown in services output in the quarter is a worry given the sector’s significant share of total UK economic output.”

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