Output falls further into contraction territory in September 

Operating conditions in the South East continued to decline in September, according to NatWest PMI® data, which signalled further deteriorations in output and new work.

Unlike that of new orders, the pace of the downturn in business activity picked up compared to August to signal the fastest decline since January 2021.

Furthermore, hiring decisions at firms were put on hold amid a moderate reduction in employment in September, the first decline since March. 

At 47.6 in September, down from 49.0 in August, the headline NatWest South East 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 — signalled a moderate contraction in business activity in September.

With the rate of decline quickening on the month, output in the South East fell at a faster pace than that of the UK as a whole.

Private sector companies in the South East registered a marginal fall in new orders in September, with the respective seasonally adjusted index posting below the 50.0 no-change mark for a third consecutive month. Anecdotal evidence attributed the sustained decline to generally weaker demand conditions amid the cost-of-living crisis. That said, the pace of contraction was softer than in August.

The pace of decrease in new sales reported by firms in the South East was broadly in line with that of the UK as a whole.

September data pointed to another hike in input prices in the South East. The respective seasonally adjusted index posted above the 50.0 no-change mark for a fortieth consecutive month, as firms noted that higher wage bills pushed up cost burdens. Others reported that suppliers had raised prices and the cost of fuel increased.

The rate of inflation was notably softer than that in August and eased to the slowest since January 2021. Furthermore, the pace of increase in input costs in the South East was broadly in line with that seen at the UK level.

Average prices charged by firms saw another monthly increase in the South East in September. Anecdotal evidence suggested that output prices rose as firms passed on the burden of greater input costs to customers.

Similar to the trend for input prices, the rate of inflation slowed, and was the weakest since February 2021. That said, selling prices in the South East rose slightly more quickly than the UK average. 

The South East experienced its first month of job shedding since March at the end of the third quarter. Companies indicated that they had adapted their payroll numbers in line with weak demand conditions, with redundancies and the non-replacement of voluntary leavers often mentioned. Although the rate of job cuts was modest, it was the quickest since January 2021. 

The South East registered a slower reduction in headcounts than that seen at the UK level. September data saw a strong degree of optimism among firms in the South East. Compared to August, confidence edged up fractionally to the highest since April 2022.

Some panellists mentioned the introduction of new products and hopes of an economic recovery as the cause of positive sentiment. Others mentioned hope of an end to current strikes.

Of the 12 monitored UK regions, optimism in the South East was second strongest, only weaker than that seen at firms in the West Midlands.

Orders pending completion depleted sharply in September to signal a fourth consecutive month of contraction. Firms attributed the fall in incomplete business to lower activity, signalling excess capacity. That said, the pace of contraction was slightly softer than that of August.

Outstanding business in the South East declined at a faster rate when compared to that seen at the UK level. For a third consecutive month, depletions were seen in each of the 12 monitored UK regions. 

Catherine van Weenen

Catherine van Weenen, NatWest London and the South East regional board, said: “High inflation and interest rates continued to burden firms in the South East in September with companies reporting weak demand for a third month running.

“September registered a first month of job shedding in the region since March as firms noted weakened demand conditions leading to redundancies and the non-replacement of departing staff.

“Meanwhile, rate of inflation continued to slow, and firms’ confidence was upheld.” 

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