BUSINESS activity in the region has fallen for the first time in 18 months amid rising costs and a drop in new orders.

Research by NatWest found businesses reporting their customers were cutting their spending.

Growth in employment came close to stalling, expanding at its slowest rate for a year and a half.

The NatWest South West Purchasing Managers (PMI) Business Activity Index for August fell to a headline figure of 46.2. A figure of 50 indicates growth and July’s figure had come in at 51.3.

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That was before the Bank of England said Britain was already in recession, and before the change of prime minister and chancellor.

Paul Edwards, chair of NatWest South West Regional Board, said: “South West private sector firms registered a renewed fall in business activity during August as sales dropped for the second month in a row.

“Firms often blamed the weaker business environment on sharply rising costs and fears that the economy is sliding into a recession, which has led clients to cut back on spending. As a result, employment growth near-stalled in August amid signs of spare capacity, while confidence around the outlook fell to its lowest on record.

“Underlying inflationary pressure reduced in August, but with energy prices continuing to rise this is a continued and growing source of concern for most businesses and the reason why we are working to support them through this difficult time.”

Businesses in the South West reported a second successive monthly reduction in overall work during August. Companies with lower sales often linked this to uncertainty around the economic outlook and subsequent cuts to client spending.

The rate of decline was the fastest since January 2021 and contrasted with only a fractional drop in new business across the UK.

The report’s Future Activity Index indicates firms were generally positive about the 12-month outlook for output. However, positive sentiment slipped for the forth month in a row and was the lowest since the measure research began 10 years ago.

There were concerns that an economic slowdown and rising costs could dampen prospects.

The survey’s Employment Index, when adjusted for seasonal variation, showed a slowdown in job creation, with employment rising at the weakest rate since the current expansion began 18 months ago.

Of the 12 regions monitored by NatWest, only the North East had a weaker performance for job growth.

Backlogs of unfinished work fell at the quickest rate since June 2020 as new orders declined.

Firms put up their prices in August, with inflation edging to a six-month low but still among the fastest in the history of the research. Companies reported passing on some of their additional costs through higher prices. However, output charges lose less quickly than across the UK as a whole.