THE third national lockdown has weighed heavily on firms in the South West, dragging down business activity and new work, data suggests.

The NatWest South West Business Activity Index, which measures output in the manufacturing and service sectors, dropped from 46.9 in December to 38.5 in January.

It was the steepest contraction since last May and sharper than the UK average.

The amount of new business received by the region’s companies fell for the fourth month in a row. Companies commonly cited the reintroduction of lockdown.

Demand low but businesses optimistic about Covid

Paul Edwards, chair of NatWest’s South West regional board, said: “Business activity across the South West fell at an accelerated pace in January due to the reintroduction of stricter lockdown measures and business closures. Although the rate of decline was not quite as severe as those seen last spring, the data still add to expectations of a weak Q1 performance as the country seeks to curb the spread of the virus.

“Uncertainty over when restrictions can start to be eased meanwhile weighed on business confidence, which slipped to a nine-month low, though the ongoing vaccine rollout is a source of optimism.

“On the prices front, there was evidence of a further squeeze on operating margins, as sharply rising costs contrasted with only a slight increase in selling prices, as firms seek to attract and secure new work.”

Second lockdown impact on business revealed in NatWest activity index

Although firms expected output to rise in the next year, optimism weakened for the second month running and business confidence was weaker than the UK-wide trend.

Employment fell for the 11th month in a row and the rate of decline quickened slightly, although it was not as severe as in the UK as a whole.

After reaching a 26-month high in December, the rate of input cost inflation across the South West private sector eased in January.