South West private sector economy shrinks, PMI report tells Plymouth businesses

THE South West's private sector economy shrank last month and jobs were lost, a new report says.

The latest Lloyds TSB South West PMI revealed a fall in output and new orders, after two months of growth, accompanied by a sharp rise in input prices.

The reduction in business activity was, however, described as "modest", as was the fall in new business, for the first time in three months.

The drop in employment levels was described as "slight", while backlogs of work fell sharply. Output cost inflation was only marginal.

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The headline Lloyds TSB South West Business Activity Index, a seasonally adjusted index that tracks changes in the combined output of the region's manufacturing and service sectors, posted at 48.8 in February, down from 51.2 in January.

With readings above 50 signalling expansion, and those below 50 indicating contraction, this revealed a modest reduction of output in the South West. In the same month, the overall UK economy posted a modest rate of expansion.

The general reduction in the region reflected the weak performance of the service sector, which saw a decline in business activity in February, the report said.

New orders also fell in the South West private sector, with the rate of reduction, although modest, being the quickest since last July.

In contrast, the UK economy registered modest new order growth.

Employment levels decreased for the third month in a row in February.

But the rate of job shedding eased from January and was only slight.

Sector data indicated staff numbers fell across both sectors. This was contrasted by the UK economy which recorded a modest expansion of workforces last month.

The level of outstanding business in the region fell in February.

Backlogs of work have now fallen for 23 months in a row, according to economists at financial information company Markit, which collects data from a representative panel of South West firms in the manufacturing and service sectors to compile the report.

They described the rate of reduction as "sharp", and the fastest since last July.

The UK economy also registered a net reduction of work-in-hand, though at a slower rate than in the South West.

Input costs increased at private sector firms in the region. Despite easing slightly from January, the rate of inflation remained sharp.

Output charges were raised for the 12th month running, but the rate of inflation eased from January and was slight. Inflation at UK level, meanwhile, was modest.

David Beaumont, area director for Lloyds TSB Commercial Banking in Devon and Cornwall, said: "The South West private sector had a disappointing performance in February, with both business activity and new work orders falling moderately following expansions in January.

"Meanwhile, the UK economy saw modest rates of growth in activity and new business.

"February's survey showed the service sector drove the overall decline across the South West, while the manufacturing sector remained relatively resilient.

"The rate of job reductions also slowed to a marginal pace overall, with manufacturers reporting broadly stable employment levels.

"However, firms' margins were further squeezed as higher operating costs were only partially passed on to customers."