Latest survey data indicated a contraction in activity across the South West private sector in December.

The headline NatWest 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 – was 47.5 in December, up from 45.3 in November.

The latest reading, which includes the Isle of Wight, indicated the slowest rate of decrease in the current five-month sequence of contraction, amid a softer reduction in new orders.

That said, the downturn in business activity registered across the south west was the third-fastest across the 12 UK regions.

Private sector companies across the south west reported a fall in new business received for the sixth month running in December.

While the rate of contraction eased for the second consecutive month from October's 21-month record, the drop in total new business was solid overall.

Panellists reported a collapse in order intake amid a challenging economic environment, rising uncertainties and inflation.

At the UK level a contraction in incoming new business was also reported, but at a slightly weaker rate than that seen in the South West.

Following a second uptick in confidence, December data registered the strongest level of optimism among panellists since June. As per anecdotal evidence, plans for investment and hopes of a revival in demand underpinned growth expectations.

Nonetheless, the degree of confidence across the south west was weaker than the long-term and the UK-wide averages.

Following two months of meagre expansions in employment, private sector firms pared back staffing levels in December.

The rate of job shedding was the fastest since January 2021.

Competition for labour amid skills and candidate shortages, and companies reluctant to replace any leavers due to economic uncertainty and falling demand, were partly blamed for the latest drop in employment.

At the UK level employment also fell, and for the first time in 22 months, albeit at a softer pace than that seen across the south west.

Outstanding levels of business contracted across the south west during December, thereby extending the run of decrease to six months. Lower levels of work allowed firms to work through existing orders.

That said, the rate of backlog depletion was the weakest in the aforementioned sequence, and much slower than that seen at the UK level. 

December data revealed yet another rapid rise in input prices during December. While the pace of input price inflation moderated on the month to signal the weakest increase in expenses in 20 months, it remained historically elevated.

Rise in wages, the cost of living crisis and inflation were largely attributed to the latest incline.

Despite registering a rapid increase in average cost burdens across the South West, it remained weaker than that seen at the UK level.

Latest survey data pointed to a rise in charges for the provision of goods and services across the south west in December, thereby extending the current run of charge inflation to two years.

Adjusted for seasonality, the Prices Charged Index ticked-up for the second month running, with the latest reading highest in four months and above the survey-average. Firms attributed the rise in charges to higher costs linked to wages and rent.

Some firms also revealed an updated price list for goods and services for the coming year.

Paul Edwards, chair, NatWest South West Regional Board, commented: "The year ended with a continued reduction in business activity across the South West during December.

"Albeit the pace of decrease was softest in the five-month period of decrease, it signalled the ongoing worsening of the private sector as incoming new business fell for the sixth consecutive month, with firms also cutting back on staffing levels for the first time since September.

"The overall declining health of the sector reflected the fallback in demand as recession fears, inflation and the cost of living crisis dominated the economic environment for most part of the second-half of the year.

"The outlook for 2023 suggests ongoing challenging conditions across the private sector, but perhaps less so than previously expected, with the month on month improvement in business confidence giving at least one sign of slightly more optimism."