After a challenging period, South West England's private sector firms are showing signs of cautious optimism, as indicated by the latest NatWest report. Business confidence has seen a rebound from September's nine-month low, driven by the anticipation of increased customer demand and a potential uptick in sales. This positive outlook is reflected in the sector's optimistic 12-month output forecast for October, which sits slightly above the series average.
The NatWest south west Purchasing Managers' Index (PMI) Business Activity Index for October pointed to a marginal recovery in business activity, registering at 50.1 and marking an end to four consecutive months of contraction. While this suggests stabilization at the onset of Q4 2023, companies continue to face challenges including higher input costs due to increased wages and prices for raw materials, fuel, and energy.
Despite these cost pressures, there appears to be a silver lining as firms have hinted at expansion plans. However, the region has not been immune to difficulties; staff reductions were reported for two consecutive months in October, attributed to decreased demand and voluntary departures.
Furthermore, October represented the eighth consecutive month of decline in outstanding business for South West private sector firms, albeit at the slowest pace since April. This was due to reduced inflows of new work leading to less unfinished business on hand. London reported a softer backlog decrease compared to other UK regions.
Notably, the input price inflation rate in October was the lowest since January 2021, suggesting that cost pressures have eased somewhat. Nevertheless, a significant rise in operating expenses was observed across the UK.
Paul Edwards, chair of the NatWest south west regional board, highlighted that while there are signs of stabilization and slight growth, there is still a need for stronger demand and sustained sales improvement to ensure solid sector growth. According to Edwards, these elements are crucial for the sustainable growth of South West businesses.
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