Home Business News Activity growth negligible in August as sales begin to fall

Activity growth negligible in August as sales begin to fall

by LLB Finance Reporter
11th Sep 23 2:05 pm

The headline NatWest London PMI 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 – dropped for the fourth month running in August to its lowest point in 2023 so far.

At 50.4, the index signalled only a marginal increase in output, as respondents highlighted that growth was weighed down by a fall in new orders. London was joined by Wales as the only two UK regions to post an expansion in activity over the latest survey period.

London-based companies reported a drop in new order inflows midway through the third quarter, as the seasonally adjusted New Business Index fell below the 50.0 neutral mark.

The decrease was the first recorded in the year-to-date, but was marginal and comparable with those seen at the end of 2022. Where a drop in sales was noted, firms related this to a lack of customer confidence amid uncertainty surrounding inflation and interest rates.

Businesses in the capital continued to predict an uplift in activity over the coming 12 months in August. The Future Output Index even ticked up slightly for the first time since May. Just under half of all survey respondents were positive about the year ahead, with many attributing this to greater investment in new products and marketing.

By contrast, approximately 12% of companies forecast a fall in output linked to expectations of stubborn inflation.

As has been the case throughout 2023 so far, London-based firms registered an increase in staff numbers during August. Survey panellists frequently linked labour growth to expansion plans and a positive outlook towards activity and sales.

However, reports from other companies of restructuring, cost saving and hiring difficulties meant that the pace of job creation slowed to a modest level that was the softest since March. The slowdown came in line with a cooling of employment growth at the UK level.

The level of outstanding work at London companies fell for the second consecutive month in August, with the rate of decline accelerating to the sharpest in two-and-a-half years. In fact, outside of pandemic-lockdown months, the reduction was the steepest seen since October 2009, though it remained softer than the nationwide trend. Panellists cited the completion of outstanding orders and a lack of new business to sustain workloads.

Private sector firms in London registered another sharp rise in input costs over the latest survey period. While the pace of inflation ticked down to the softest since June 2021, it remained quicker than that seen throughout much of the series history. According to anecdotal evidence, cost burdens were largely driven by wage increases, although some respondents cited higher fuel costs.

Sustaining the recent trend, London posted the quickest increase in input prices out of the 12 monitored UK areas, followed closely by the South West.

Average prices charged by London companies rose at a sharp, but slower pace midway through the third quarter, as the respective seasonally adjusted index dropped to its lowest for two years. Roughly twice as many companies raised their charges (15%) as those that noted a reduction (8%), with panel members suggesting that sales weakness had begun to offset efforts to pass on higher costs.

Sources: NatWest, S&P Global PMI. 

Catherine van Weenen,NatWest London and the South East Regional Board said, “The wave of growth recorded across London this year saw some signs of slowing, with business activity showing limited movement in August following consistent slowdowns over the past four months.

“Adding to this, new business intakes dropped for the first time this year, with the downturn mild but comparable to the weak Q4 2022 showing.

“We also saw the fastest reduction in outstanding work since 2009, when excluding COVID-lockdown periods. This suggests that London firms could be left with little work to complete if demand does not make a recovery, which is a concern considering how widespread the downturn is developing both in the UK and worldwide.

“Despite this backdrop, businesses in the capital are still predicting growth in the year ahead, with many planning to take the initiative themselves with the development of new products and investment in marketing.”

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