Activity and new business decline solidly in the South East

A sustained weakening in the health of the South East region was signalled by the NatWest PMI data in October as companies reacted to subdued incoming new business by cutting their output levels.

Cost and charge inflation persisted but at notably slower rates compared to recent trends. A dip in confidence was reflected in employment decisions as jobs were cut marginally and, in some cases, selling prices were discounted in an attempt by firms to remain competitive. 

Down from 47.6 in September to 45.2 in October, 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 — registered a solid rate of contraction that was the fastest since January 2021. Panellists attributed the downturn to adverse market conditions and supply-side issues.

Firms in the South East of England registered a decline in new business in October, with the latest downturn the fourth in successive months.

Survey respondents often attributed the deterioration to persistently weak demand conditions. Others mentioned that incoming business fell amid reports of customer de-stocking. The pace of contraction picked up from September and was the sharpest in almost a year. 

The South East registered a quicker decline than that seen at the UK level. Private sector operating expenses continued along a rising trend during October. Panellists noted an increased burden of raw materials, fuel, salaries and software in anecdotal evidence.

That said, the rate of inflation slowed from September to its lowest since January 2021. Some firms attributed operating cost reductions to weakened demand conditions.

The rate of inflation in the South East was faster than the UK average. Companies in the South East raised selling prices in October, amid reports of higher fuel, raw material and overhead costs.

Although strong, the rate of inflation eased from September, and was the joint-slowest since January 2021. Panellists noted that they had discounted fees to remain competitive amid ongoing market weakness.

A stronger rate of output charge inflation was registered in the UK than in the South East of England. October data indicated a second successive month of job cuts at private sector firms in the South East.

Some panel members noted that they had adjusted their staffing levels to match business needs and make cost reductions while demand conditions were muted.

Others cited that resignations caused the drop in payroll numbers. The pace at which jobs were shed slowed from September and was only marginal overall, however. Compared to the UK, the local trend of job shedding was slower.

Despite dampened demand conditions, private sector companies in the South East of England remained upbeat towards output growth prospects in October. New product launches and increased marketing continued to underpin optimism.

That said, the overall level of positive sentiment was notably lower than in September, and the weakest in eight months. 

Regionally, the South East maintained its second-place position in the rankings for business confidence. Companies in the South East signalled spare capacity in October, with orders pending completion declining for a fifth consecutive month. Survey respondents often mentioned that while demand remained subdued and orders fell, they had worked through backlogs.

Although strong overall, the speed of outstanding business depletion slowed from September. The South East recorded a faster clearing of pending workloads than the UK.

Catherine van Weenen of the NatWest London and the South East regional board, said: “The South East battled another month of poor demand conditions, with the impact of the cost-of-living crisis clear as we entered the final quarter of 2023 – a trend made apparent by the sustained and quickening downturn in new business.

“Although firms scaled back output solidly, the second month of retrenchment signalled was only marginal. That said, sentiment among local companies regarding output over the next 12 months dropped notably from September. Meanwhile, the PMI price indices showed continued softening of inflation in October.”

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