By Daniel Hunter

Private sector output fell marginally across the English regions in July, according to the latest Lloyds TSB regional Purchasing Managers’ Index (PMI).

The latest index reading of 49.5 fell below the critical 50.0 ‘no change’ mark - having reached 51.3 in June - and was the weakest monthly reading since April 2009, reflecting falling business activity in six of the nine English regions. The July data indicates that the overall downturn has been led by a steep drop in manufacturing output and anecdotal evidence suggests that less favourable global economic conditions and a reluctance to spend among clients has driven this change.

The North East registered the sharpest decrease in private sector output in July, extending the current period of decline in the region to five months. The rate of contraction in the North East private sector was the steepest for almost three-and-a-half years. The East of England and North West also posted particularly marked falls in business activity during July. Meanwhile, the main regions to buck the wider trend were London and the East Midlands, which both recorded solid output growth. In both cases, this was driven by an improved service sector performance.

Across the English regions as a whole, new business volumes remained close to stagnation in July. The latest data showed that a steep downturn in new manufacturing orders was broadly offset by moderate growth of new work among service sector companies. London was the main region to outperform the wider regional trend, with new business rising at a solid pace that was the fastest for three months. Companies operating in the East of England saw the fastest drop in new business, followed by the North East.

A near stagnation of new business intakes meant that firms focused resources on reducing their work in hand during July. All nine English regions registered a drop in backlogs of work, with the steepest rate of contraction seen in Yorkshire & Humber.

Employment growth across the private sector was maintained at a marginal pace across the English regions in July, extending the current period of overall expansion to seven months. The East Midlands registered the strongest rate of job creation. The North West saw the most marked drop in staffing levels, with the region one of only three that posted lower workforce numbers since June.

July’s data indicated that input cost inflation across the English regions overall was the slowest for three years. Reports from survey respondents mainly cited lower costs for raw materials on global markets. Strong competition for new work resulted in falling output charges in the majority of regions during the latest survey period.

“Weaker global economic conditions remained a key drag on businesses across the English regions in July, resulting in a stagnation of new orders and falling output over the month," David Oldfield, managing director, Lloyds TSB Commercial, said.

"Manufacturers saw a particularly steep reduction in activity, which offset modest service sector growth. Stark contrasts in output trends were seen across the regions. The North East was the worst performing region while only London and the East Midlands fared better than in June.

"Local businesses nonetheless continue to benefit from lower cost pressures in the wake of falling commodity prices. But with consumer disposable income and business profitability supported by falling cost inflation, we do expect the outlook to improve in the coming months.”

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