North East private sector suffers as output falls, reveals NatWest report

The North East private sector ended the second quarter on a weaker footing following a drop in output not seen since the days immediately after the Brexit vote, according to a new report.

The latest NatWest PMI® survey, revealed today (Monday, July 8) highlights faster decreases in output and new orders across the period.

The study also reveals a fall in jobs, due in part to a softening of business confidence, while competitive pressures weighed on firms’ pricing power.

The survey’s headline NatWest North East Business Activity Index, which measures changes in the combined output of the region’s manufacturing and service sectors, gave a reading of 46.4 in June.

The figure was down more than two points on May’s 48.9 and was, according to NatWest, the steepest fall in regional output since the aftermath of the EU referendum.

Sector level data for the North East showed output decreased across both manufacturing and services. Behind the reduction in output in June – the ninth in the past ten months – was a decrease in underlying demand for goods and services.

Surveyed firms reported Brexit uncertainty and weakness in the auto sector leading to lower inflows of new work, which fell to the greatest extent since February.

The study also highlighted North East firms continued to operate at below full capacity, as evidenced by a further marked reduction in backlogs of work. It added June’s decrease in outstanding business was the largest since November last year.

Accordingly, it said firms remained in retrenchment mode, resulting in the 12^th straight monthly decrease in regional employment.

However, despite the survey showing job losses across both manufacturing and services, the overall rate of decline in employment was the slowest in the current sequence.

Elsewhere, the survey found evidence of growing competitive pressures weighing on firms’ pricing power.

Average prices charged for goods and services rose at the slowest rate since late 2016 in June, with the pace of inflation down sharply from a seven-and-a-half-year peak in January.

A weak pound and wage pressures led to a rise in firms’ operating expenses during the month. Though ticking up slightly from May’s two-year low, the rate of cost inflation in the region was the weakest nationally.

Finally, data showed a further decrease in firms’ optimism towards the year ahead outlook for output, to the weakest since February.

Richard Topliss, chair of the NatWest North Regional Board, said the region’s private sector had been hit by a “triple-whammy” of issues.

However, he also urged caution over the present situation, saying firms in the North East have retained some confidence that their fortunes will improve as the year progresses.

He said: “Following on from a disappointing end to 2018, the first half of this year has been another difficult period for firms in the North East.

“The PMI surveys have shown regional output falling in five of the first six months of 2019, with only Northern Ireland recording a faster rate of contraction over the second quarter.

“Demand for goods and services across the region has been hit by a triple-whammy of Brexit uncertainty, car industry troubles and destocking.

“Nevertheless, firms haven’t given up hope of seeing output return to growth over the coming year, and cost pressures in the region are the lowest nationally, which represents an opportunity for firms to find the right pricing strategies to get the local economy back on track.”