North East private sector activity falls for the fourth month running amid Brexit uncertainty

Private sector firms in the North East reported a fall in business activity for the fourth month in a row in August, latest PMI^®survey data from NatWest and IHS Markit showed, with the region’s performance being undermined by a sustained decline in demand. Job losses also remained a feature of the survey as firms reported increased worries about the outlook.

Meanwhile, amid strong competition for new work, August saw a fall in average prices charged for goods and services for the first time in over three years.

The headline NatWest North East Business Activity Index – a seasonally adjusted index that measures changes in the combined output of the region’s manufacturing and service sectors – registered 47.0 in August, down from 48.8 in July. A reading below 50 indicates contraction, and the further below 50 the faster the rate of decline signalled. Only Northern Ireland (45.4) recorded a more marked decrease in business activity than the North East during the month.

Broken down by sector, data for the North East showed decreases in output across both manufacturing and services.

Weighing on business activity in August was a further decrease in the volume of new work received by private sector firms in the North East. A drop has now been recorded in 12 of the past 13 months, with the rate of decline accelerating from July. Anecdotal evidence pointed to generally lower demand, with Brexit uncertainty a contributing factor.

Capacity pressures remained historically low across the region during August, with backlogs of work falling sharply as local firms completed orders at a quicker rate than they received them. As such, there remained a preference for lower staffing numbers amid efforts to control costs. That said, while the rate of job shedding accelerated for the first time in six months, it remained only modest overall.

A decrease in business confidence towards the outlook for activity was another factor that led to job losses during the month. Reflecting heightened Brexit uncertainty and concerns about the health of the economy, sentiment among local firms deteriorated sharply in August and was the joint-lowest since data on expectations were first collected in July 2012.

Elsewhere, the latest data showed a rise in average operating expenses faced by private sector firms in the North East. Furthermore, the impact of the weaker pound on import prices saw the overall rate of cost inflation tick up to a four-month high. Higher costs were generally absorbed by businesses, however, as strong competition for new work led to a modest decrease in average selling prices. This ended a record three-year sequence of output charge inflation in the region.

Richard Topliss, chair, NatWest North regional board (pictured), commented: “The North East remains one of the UK’s weakest-performing areas for business activity, seeing the output of goods and services fall for a fourth consecutive month in August.

“However, with competition for new work getting stronger and the uncertain political and economic backdrop leading to greater caution among clients, local firms have taken action and reduced prices in a bid to revive demand.

“At the same time, the data highlight the impact of the falling pound on businesses’ costs, which has put further pressure on margins.”