THE latest NatWest Yorkshire & Humber PMI data has revealed the first contraction in business activity in the region since July 2016.
The result was driven by an accelerated contraction in new business and a slightly quicker reduction in staff numbers. Amid softening demand, volumes of outstanding business fell at the quickest pace for over seven years. Meanwhile, input price inflation eased for the second month in a row, which saw firms increase output charges only moderately.
Looking forward, positivity towards the business outlook increased for the first time since May.
The headline NatWest Yorkshire & Humber Business Activity Index – a seasonally adjusted index that measures month-on-month changes in the combined output of the region’s manufacturing and service sectors – posted 49.1 in October, down from 50.1 in September. The reading pointed to the first decline in Yorkshire and Humber’s business activity since July 2016, albeit one that was only marginal.
At the sector level, the decline was broad-based across manufacturers and service providers, with the former recording the steeper contraction.
A key factor behind the overall contraction in business activity was a further softening of demand at the start of the fourth quarter. New business fell at the fastest rate for over three years with some panellists suggesting Brexit uncertainty weighed on confidence at their clients. Underlying data revealed that the reduction was slightly quicker at manufacturers.
Amid easing demand conditions, private sector firms in Yorkshire and Humber were able to alleviate backlogs of work in October. Moreover, the rate of decrease was the quickest since July 2012 and marked overall. At the sector level, service providers registered a slightly faster pace of contraction than their manufacturing counterparts.
Companies were able to reduce volumes of outstanding business despite a slight reduction in staff numbers during October. The result followed a broad stagnation in employment during September, and represented the quickest drop since February. Panellists that recorded workforce contractions mentioned cost-cutting initiatives, weaker inflows of new business and Brexit uncertainty.
On the price front, input costs faced by businesses in Yorkshire and Humber continued to rise markedly. However, the rate of inflation eased to the softest since June 2016 and lagged behind the UK-wide average. Sector data pointed to a broad-based rise in cost burdens, with the slowdown primarily driven by manufacturers.
Firms opted to pass some of the higher costs onto their clients with an increase in average output charges. That said, the latest rise was the slowest since March 2016.
Finally, private sector companies in Yorkshire and Humber remained positive towards the one-year business outlook. The degree of positivity increased for the first time since May.
Richard Topliss, chair of NatWest North Regional Board, said: “The latest PMI data pointed to a slight reduction in business activity across Yorkshire and Humber, as new orders eased for the second month in a row and staff numbers were cut marginally. Put into context however, the result came amid a UK-wide stagnation in output, and three regions recorded sharper deteriorations than Yorkshire and Humber.
“When explaining the latest results, many panellists suggested that Brexit uncertainty continued to weigh on demand conditions. A return to solid growth rates may therefore be contigent on breaking the Brexit deadlock in Westminster.
“The upcoming general election could provide an opportunity to alleviate the uncertainty that has stifled business in Yorkshire and Humber in recent months.”