BUSINESS activity in the South West and Southampton slipped to a four-month low in May, according to research by NatWest.

The bank’s latest Purchasing Managers Index data showed a further loss of growth momentum, with companies registering softer rises in business activity and new work.

Some said global uncertainty and strong cost pressures had weighed on business conditions. Input prices increased at the second-fastest rate on record, while prices charged also rose rapidly.

However, a solid increase in backlogs and efforts to expand capacity helped drive a further steep increase in employment.

The headline NatWest South West 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 – fell from 60.3 in April to 55.0 in May, signalling a slower expansion in overall business activity. Though marked and quicker than the UK average, the rate of growth was the softest seen for four months.

Adjusted for seasonality, the New Business Index pointed to an increase in total new work at South West firms for the 15th successive month in May. Though solid and quicker than that seen across the UK as a whole, the rate of growth was the softest seen in 2022 to date. Higher sales were often linked to stronger demand conditions amid a further recovery from the pandemic and new client wins. However, some firms mentioned that increased global economic uncertainty had dampened the latest upturn in new orders.

South West private sector firms retained a positive outlook regarding future business activity but the degree of optimism edged down from the second quarter and was the second-lowest seen since April 2020.

Survey respondents often commented on planned company expansions amid forecasts of rising customer demand and investment in new products. However, concerns over rising costs, higher interest rates and uncertainty over the housing market all weighed on overall confidence.

Paul Edwards, chair of the NatWest South West Regional Board, said: “The latest PMI data showed a notable loss of growth momentum across the South West private sector for the second month running in May.

“Companies are facing a challenging environment of increased global uncertainties, sharply rising costs and supply chain disruption, which are all heavily impacting demand and firms' operations. Notably, companies registered the second-quickest upturn in expenses on record, which many are having to pass onto already-squeezed customers amid the current cost of living crisis.

“One brighter spot was employment, which continued to expand sharply across the South West and at a rate that exceeded the UK-wide trend."