Finance

Business activity surge slowed by supply issues as growth hits seven month low

Summer’s surge in business activity growth has drawn to a close, with the increase now at the slowest pace since the midst of the final lockdown.

Shortages of raw materials are weighing heavy on output and demand according to analysis from NatWest’s Yorkshire and Humber Business Activity Index.

Supply-side issues have led to a series-record rise in gate prices.

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The seasonally adjusted figure that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors fell to a seven-month low of 54.7 in September, down from 55.5 in August and signalling a further slowdown in the rate of economic growth across the region.

Having led the UK for much of the immediate recovery, of the 12 monitored regions, Yorkshire and Humber ranked sixth for output growth.

Manufacturers – who recorded a weaker rise in new orders compared to their services counterparts – suggested that higher costs had curtailed demand. Meanwhile, shipping issues had an adverse impact on sales in both sectors, according to surveyed firms.

Richard Topliss, chairman of NatWest’s North regional board, said: “PMI data for September confirmed a further slowdown in growth across Yorkshire & Humber. Some slowdown was to be expected as demand and activity levels get closer to pre-pandemic levels, although there were some other factors at play in September that hindered business operations. Namely, the ongoing and well-documented supply chain disruptions impeded businesses, particularly in the manufacturing sector, who struggled to acquire vital inputs. There were also reports of staff shortages, which weighed on employment growth.

Richard Topliss, chairman of the North regional board at NatWest

“Another symptom of intense material shortages was rising prices. Cost pressures remained substantial in September, leading firms to increase their charges at the strongest rate since data were first collected in 1999. The risk now is whether these higher prices will start to restrain demand at a time of slowing growth.”

The latest survey data pointed to a strong rate of employment growth in the region. According to anecdotal evidence, additional staff were hired to accommodate higher activity levels.

An increase in work-in-hand was seen during September, extending the current period of rising backlogs to seven months.

Firms blamed increased capacity pressures on a lack of inputs due to delivery delays and low material supply at vendors, as well as staff shortages. That said, the rate of backlog accumulation was the weakest since April.

Despite dropping to a nine-month low, the future activity index marker signalled a sharp degree of optimism towards output levels over the coming 12 months.

Business confidence in the region was the second-strongest in the UK.

New product developments, rising demand and improvements in the global economy were all reasons provided by firms who expect activity to increase over the next year.

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