THE downturn in business activity across the south west has lasted for a fifth consecutive month.

December’s decrease was the slowest in that five-month period but was still one of the fastest among  the UK regions.

The NatWest South West PMI (Purchasing Managers Index) Business Activity Index, which measures the month-on-month change in both the manufacturing and service sectors, produced a headline figure of 47.5 in December, up from 45.3 in November. A reading above 50 indicates growth.

Paul Edwards, chair of NatWest South West Regional Board, said: "The year ended with a continued reduction in business activity across the south west during December. Albeit the pace of decrease was softest in the five-month period of decrease, it signalled the ongoing worsening of the private sector as incoming new business fell for the sixth consecutive month, with firms also cutting back on staffing levels for the first time since September.

“The overall declining health of the sector reflected the fallback in demand as recession fears, inflation and the cost of living crisis dominated the economic environment for most of the second half of the year.

"The outlook for 2023 suggests ongoing challenging conditions across the private sector, but perhaps less so than previously expected, with the month-on-month improvement in business confidence giving at least one sign of slightly more optimism."

Firms reported a fall in new business for the sixth month running. Although the rate of contraction eased for the second month since October’s 21-month high, the drop was still described as “solid”.

Survey panellists reported a collapse in orders amid a challenging economic environment, rising uncertainties and inflation.

Staffing levels dropped at the fastest rate since January, with survey respondents blaming competition for labour amid skills and candidate shortages, as well as a reluctance to replace leavers because of economic uncertainty and falling demand.

However, December also saw the strongest level of optimism among panellists since June, with plans for investment and hopes of a revival in demand.

At the UK level, employment also fell for the first time in 22 months but at a softer pace than that seen across the south west.

Backlogs of work fell for the sixth month but slower than across the UK.

There was another rapid rise in input prices, although it was the weakest increase for 20 months.

The survey found the prices of goods and services rising again, continuing a two-year streak of inflation. Prices charged were at their highest for four months, with respondents citing higher costs linked to wages and rent. Some firms also revealed updated price lists for the coming year.