Growth in the South West economy weakened last month to its lowest for nine months as businesses struggled against a near collapse in new orders, new research shows today.
The gloomy data, from the Lloyds TSB South West Business Activity Index, follows similarly downbeat findings from the ICAEW/Grant Thornton UK Business Confidence Monitor released last Friday which showed a slow and fragile recovery in the region.
Combined, the two key surveys paint a picture of a regional economy struggling to make headway against mounting pressures including rising costs, especially for raw materials.
The Lloyds TSB report, which uses data from the respected PMI survey, blames the slowdown on the sharpest fall in backlogs since September 2009 as new orders became scarcer.
The seasonally adjusted activity index – which measures the combined output of the region’s manufacturing and service sectors – fell from 55.2 to 51.1.
That means while growth has now been recorded for 20 consecutive months, May was the joint-weakest in this period.
The only bright spot in the report was that employment continued to increase, although at a modest pace.
The report says: “Backlogs of work at companies in the South West fell sharply during May, reflective of the near-collapse in new order growth. Furthermore, declines in outstanding business were seen in both the manufacturing and service sectors.”
The rate of slowdown was sharper among service sector firms, with manufacturers reporting that increased capacity had also contributed to the decrease in backlogs.
While panellists in both sectors reported higher costs in the month, the latest rise was stronger for manufacturers.
Commenting on the survey, Dave Atkinson, area director for Lloyds TSB Commercial, said:
“The average for the second quarter of the year so far is markedly below that recorded for the first quarter. Employment continued to rise, which will help to support domestic demand in the region, but the latest rate of job creation was the weakest in eight months.”
The ICAEW/Grant Thornton report shows South West business confidence rising in the second quarter – but it remains far more fragile than the national average.
Key findings are:
- The South West Confidence Index stands at +5.4, up from -4.1 in the first quarter but trailing the +13.7 nationally
- Turnover, gross profits and sales volumes all expanded by 3.1% over the past 12 months and now stand at their highest level since the third quarter of 2008.
- Exporting firms report weaker annual exports growth than those in any other UK region, but domestic sales growth was strong over the past 12 months
- Reported growth levels are about half those typically seen before the recession, pointing towards a slow but steady economic recovery rather than a sharp bounce back to trend growth.
- Firms are also more cautious in their outlook than the rest of the UK, forecasting turnover growth of 4.8% over the coming year compared to 5.7% nationally.
South West Regional Director of ICAEW Jon Blake said: “This quarter’s confidence index shows that growth and certainty are returning to the South West economy. Businesses are more optimistic about the future and this is reflected in their forecasts for turnover and profit growth. They are however wary of the reality that the recovery is going to be slow, perhaps a little more so than the rest of the UK.
“As a result, there is greater caution over making long term commitments and investment. More significantly, many companies recognise that the heady days of pre-recession growth are a thing of the past and are not likely to be seen again for some time.”
Grant Thornton’s regional managing partner Nigel Morrison added: “The latest findings reflect an easing in business concerns in the South West following a difficult winter for the economy. While it is encouraging to see such a marked improvement over the last quarter, the effects of the public spending cuts are only now just beginning to be felt, and this is the backdrop against which future surveys will be carried out.”
