THE latest NatWest PMI® data shows a further loss of grown momentum across the south west private sector in May, with companies registering softer rises in both business activity and new work.

Some firms mentioned that greater global uncertainty and strong cost pressures had weighed on business conditions.

Notably, input prices increased at the second-fastest rate on record, while prices charged also rose rapidly.

However, a solid increase in backlogs and efforts to expand capacity helped to drive a further steep increase in employment.

The headline NatWest South West 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 – fell from 60.3 in April to 55.0 in May, to signal a slower expansion in overall business activity.

Though marked and quicker than the UK average, the rate of growth was the softest seen for four months.

Adjusted for seasonality, the New Business Index pointed to an increase in total new work at south west private sector firms for the fifteenth successive month in May.

Though solid and quicker than that seen across the UK as a whole, the rate of growth was the softest seen in 2022 to date.

Higher sales were often linked to stronger demand conditions amid a further recovery from the pandemic and new client wins.

However, some firms mentioned that increased global economic uncertainty had dampened the latest upturn in new orders.

South west private sector firms retained a positive outlook regarding future business activity in May.

That said, the degree of optimism edged down from that seen at the start of the second quarter and was the second-lowest seen since April 2020.

Survey respondents often commented on planned company expansions amid forecasts of rising customer demand and investment in new products.

However, concerns over rising costs, higher interest rates and uncertainty over the housing market all weighed on overall confidence.

As has been the case since March 2021, private sector firms in the south west added to their staffing levels in May. Despite edging down to a three-month low, the rate of job creation remained historically sharp.

In fact, of the 12 monitored UK regions only London saw a quicker rise in workforce numbers during May.

A number of monitored companies mentioned hiring additional staff to increase capacity and fill outstanding vacancies.

That said, some firms mentioned that recruitment was challenging due to difficulties finding candidates.

May survey data pointed to a solid and accelerated rise in backlogs of work at south west private sector firms. Not only was the rate of accumulation the quickest seen since January, it was also the strongest of all 12 monitored UK regions.

Anecdotal evidence suggested that material and staff shortages alongside rising intakes of new work had driven the latest increase in unfinished business.

South west private sector firms signalled a further steep increase in cost burdens during May. Notably, the rate of inflation picked up to the second-sharpest on record (after November 2021).

Reports from panel members highlighted that greater costs for energy, food, raw materials, staff and transport had all contributed to the latest upturn in expenses.  

A sharper increase in input costs was also seen across the UK as a whole in May, and one that was slightly faster than that seen in the South West.

Average prices charged by south west private sector businesses rose further in May, extending the current sequence of increase to 17 months. Although the rate of inflation softened from April's all-time high, it was nonetheless the third-sharpest in the series history. Higher fees were frequently attributed to the pass-through of greater expenses to clients.

Though marked in the context of historical data, the rate of output charge inflation in the south west continued to lag the UK-wide trend, and was the softest seen of all 12 UK regions.

Paul Edwards, chairman, NatWest south west regional board, said: “The latest PMI data showed a notable loss of growth momentum across the south west private sector for the second month running in May.

"Companies are facing a challenging environment of increased global uncertainties, sharply rising costs and supply chain disruption, which are all heavily impacting demand and firms' operations.

"Notably, companies registered the second-quickest upturn in expenses on record, which many are having to pass onto already-squeezed customers amid the current cost of living crisis.

"One brighter spot was employment, which continued to expand sharply across the south west and at a rate that exceeded the UK-wide trend."