Business activity in the North East has seen its sharpest contraction in more than a year and is the worst performing in the UK, a new survey suggests.
The NatWest North East PMI Business Activity Index – which measures changes in the region’s manufacturing and service sectors – fell from a score 49.2 in August to 43.7 last month. Scores below 50 signal a contraction in the region’s private business sector.
The drop in activity was the fastest seen since last August and the quickest decline of the 12 monitored UK regions. Weak client demand, economic uncertainty stemming from high interest rates and elevated inflation was reported by firms as reasons for the contraction.
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New orders at North East firms fell for the fifth month running and there were signs that companies in the region are seeing a decline in confidence. Although firms still anticipate increased future activity, the degree of confidence was well below recent levels seen in the region and the lowest score in the UK.
Companies in the region reported big increases in costs, notably with higher energy, fuel, transport and material prices.
Malcolm Buchanan, chair of the NatWest North Regional Board, said: “North East firms registered a tough end to the third quarter, as weak demand conditions and the cost-of-living crisis continued to weigh on new orders and output. The contraction in new business accelerated to the fastest in just under a year as customers tightened their spending as purchasing power fell. In fact, the North East was the worst performing UK region for output, new orders, employment and future activity.
“Firms entered a distinct period of retrenchment in September, as employment dropped at the sharpest pace since July 2020. Alongside cost-cutting efforts, companies sought not to replace voluntary leavers. Spare capacity ballooned as backlogs fell at a pace not seen since the initial pandemic outbreak. Weak demand for inputs, goods and services led to slower upticks in input costs and selling prices.”
The Natwest report comes a day before the release of latest regional unemployment figures. After a remarkable run that saw the North East report record low unemployment a number of times this year, two significant rises have seen the region’s rate of people out of work back above the national average.
This week will also see the release of latest inflation figures, which has been coming down in recent months after hitting levels above 10%.
