BUSINESSES in the south west saw a sharp rise in sales last month.

Regional data from NatWest suggests a strong growth of output but rising costs and shortages of staff led to a dip in business confidence - which fell to a 10-month low.

At the same time, companies registered an unprecedented increase in input costs, which led to a further substantial increase in prices charged.

The headline NatWest South West Business Activity Index slipped from 55.1 in October to 54.6 in November, and continued to signal a strong increase in output across the region. But growth remained softer than that seen at the national level for the fourth month in a row.

The index indicated a sustained increase in new work placed with south west private sector firms in November, and the rate of expansion picked up for the second month running - the sharpest seen since July.

New business rose at a similarly steep rate at the national level. According to panel members, new orders rose due to a further recovery in market conditions amid looser Covid-19 restrictions, with firms citing greater demand from both domestic and foreign client bases.

Business confidence across the private sector remained robust but the overall degree of positive sentiment slipped to its lowest for ten months and was weaker than the UK average.

While many businesses anticipate that customer demand and activity will rebound over the next year as the economy recovers from the pandemic, concerns around rising costs and supplier shortages had dampened overall confidence.

The Employment Index posted above the 50.0 no-change threshold to indicate a ninth successive monthly increase in private sector employment in the south west. The rate of job creation quickened from October and was sharp, albeit softer than the national average.

Increased headcounts were generally linked to company expansions and rising client demand. Some firms mentioned difficulties filling vacancies amid candidate shortages, however. Private sector firms registered higher levels of unfinished business for the eighth month running in November.

The rate of accumulation picked up to a solid pace that was the steepest for three months. That said, the rate of growth remained slower than that seen across the UK as a whole.

According to anecdotal evidence, material and staff shortages had led to a build-up of backlogged work in November.

Latest data showed that cost pressures intensified across the South West private sector in November. Moreover, the rate of input price inflation hit a fresh series record for the second month in a row, and was slightly sharper than the UK-wide trend. Around 61% of panel members recorded higher costs, compared to just two per cent that saw a fall, with many firms citing increased prices for materials, energy and staff, as well as higher transportation bills.

Private sector firms across the South West raised their selling prices again in November, thereby extending the current period of inflation to 11 months. Despite easing on the month and remaining below the UK average, the rate of increase was rapid overall. Where higher output charges were reported, firms generally attributed this to the pass-through of higher input costs to clients.

Paul Edwards, Chair of NatWest South West Regional Board, said:“The South West continued to perform strongly midway through the fourth quarter, with sales improving at the quickest rate since July as market conditions continued to recover amid looser pandemic restrictions. However, the rate of output growth remained weaker than the UK average, in part due to ongoing shortages of staff and materials. Concurrently, rising costs for labour, energy, transport and materials drove the quickest increase in costs since the survey began 25 years ago, which translated into a further rapid increase in selling prices as firms sought to ease pressure on margins."

“Whilst the ability to pass on some of these increased costs has been maintained, this has started to impact business confidence which dropped to a 10 month low."