BUSINESS activity in the south west dropped for the six month in a row in January.

The headline NatWest South West PMI (purchasing managers’ index) Business Activity Index slipped from 47.5 in December to 47 – a quicker fall than that seen across the UK.

The survey found weaker demand and a drop in new orders, although confidence about the coming months recovered to its highest level in eight months.

Employment in private sector companies fell for the second straight month in January, although the rate of job shedding eased to a modest pace.

Where lower workforce numbers were reported, firms generally attributed this to the non-replacement of voluntary leavers, often due to weaker economic conditions, and difficulties recruiting suitable staff.

Across the UK as a whole, employment was stable following a marginal reduction at the end of 2022.

Paul Edwards, chair of the NatWest South West Regional Board, said: “Companies in the South West had a tough start to 2023, with the latest PMI data pointing to further drops in output and new orders.

“Firms reported that increased pressure on clients' budgets due to rising costs and a weaker overall economic climate had weighed on sales and activity, and led firms to become more cautious around staffing levels in January.

"However, it was encouraging to see that confidence around the 12-month outlook continued to improve and hit an eight-month high in January, as firms anticipate new product launches and firmer customer demand to support a strong recovery over 2023.

“While this bodes well for future growth expectations, it will also be important to monitor whether there will be an easing of inflationary pressures in the months ahead, which would be much welcome news amid the ongoing cost of living crisis."

January survey data pointed to a further decline in backlogs of work, stretching the current period of reduction to seven months.

Anecdotal evidence suggested that lower intakes of new work had enabled firms to process and complete unfinished business, while there were also mentions of increased staff efficiency.

As has been the case in each month since June 2020, average input costs faced by South West private sector businesses increased. The rate of inflation picked up from December and was substantial overall. The upturn remained softer than the UK-wide trend and was slower than the average seen over 2022 as a whole.