• Business activity ticks down slightly in July • Growth expectations recover to joint strongest in nine months • Margins under pressure from sharply rising costs

The level of business activity dipped slightly across the North West private sector at the start of the third quarter, according to the latest NatWest Growth Tracker, but firms reported increased optimism about conditions over the next 12 months.

The headline North West Business Activity Index – which measures changes in the region's output of goods and services – registered 49.4 in July, coming in just below the 50.0 threshold that distinguishes growth from contraction. Surveyed firms, especially those in the manufacturing sector, reported a general lack of demand and pressures from rising prices.

More positively, however, latest data showed a rebound in business expectations towards growth prospects in the forthcoming year. The degree of optimism was the joint-highest in the past nine months, reflecting hopes of a recovery in market conditions, plans for increased marketing activity and new products, and a brighter outlook for export sales.

placeholder image — North West Business Activity Index

Input prices rose sharply across the North West private sector in July, with the rate of cost inflation ticking up for the first time since April and moving further above its long-run average.

Malcolm Buchanan, Chair of the NatWest North Regional Board, said:

"The North West economy looks to be treading water at present, with a slight dip in business activity in July following on from the steady levels of activity we saw in June.

"We continue to see headwinds to demand, but the fact that business confidence about future growth prospects has perked up suggests firms do see things improving in the coming months.

"Businesses continue to face sharply rising costs, with the rate of increase even ticking up slightly for the first time since April. With firms not able to fully pass on cost increases to customers due to a highly competitive environment, savings are having to be found elsewhere. We're seeing this impacting the labour market, but there's hope that the renewed optimism will eventually bring with it a turnaround in hiring activity."

Performance in relation to UK

Although business activity rose across the UK as a whole, the rate of growth eased. Trends varied widely across the North, with an expansion in the North East contrasting with a deepening downturn in Yorkshire & Humber.

Firms in the North West continued to report a lack of new business as the second half of the year got underway. Surveyed firms commented on factors such as customers being deterred by high prices, competition from abroad, and a general reluctance amid concerns for the economy. Inflows of new work fell at a faster rate than in June, and also one that was slightly quicker than that recorded for the UK as a whole.

The degree of optimism in the region was the second-highest across the UK, behind only the South East.

In line with the trend seen in each month since October last year, firms in the North West reported a reduction in workforce numbers in July. The rate at which employment fell was the second quickest since November 2020, just behind April's recent record. It also outpaced the UK average, with only Yorkshire & Humber recording a more marked decline in staffing levels.

Firms that reported a reduction in payroll numbers often cited the influence of higher labour costs, particularly National Insurance (NI), as well as reduced workloads.

Businesses in the North West were more than sufficiently staffed to deal with the current level of demand, once again completing more orders than they received during July. Backlogs of work fell markedly – and more sharply than across the UK as a whole – albeit with the pace of depletion easing to the weakest for eight months.

Prices charged by firms in the North West for goods and services, on the other hand, rose at a slightly slower rate in July, pointing to a squeeze on margins. The rate of output price inflation was at a 14-month, and it was below both its historical trend and the national rate. Competitive pressures were a factor dampening local firms' pricing power, anecdotal evidence showed.