The NatWest Regional Growth Tracker signalled a broad stabilisation of new orders in the Yorkshire & Humber private sector during July, with rates of decline in output and employment easing as a result. There was also a softening of inflationary pressures.

The headline Yorkshire & Humber Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – rose to 49.1 in July from 45.5 in June. Although continuing to signal a reduction in business activity at the start of the third quarter, the latest index reading pointed to only a slight fall and one that was the least pronounced in the current sequence of contraction. Where activity decreased, firms generally linked this to muted new order inflows.

New orders were little changed in the Yorkshire & Humber region during July, following reductions in each of the previous four months. A number of respondents indicated that customer confidence remained subdued amid market uncertainty, but others signalled a pick-up in demand, particularly with regards to export business.

The non-replacement of departing staff as part of efforts to limit costs resulted in a further fall in employment in the Yorkshire & Humber private sector during July. Workforce numbers decreased for the twentieth consecutive month, and at a solid pace, but the rate of job cuts eased to the weakest since last October.

The effects of geopolitical issues continued to drive up prices for fuel, oil and raw materials in July. Input costs increased sharply again as a result, but the rate of inflation slowed markedly from the previous month and was the weakest since February. In line with the picture for input costs, the rate of output price inflation eased in July, but remained marked and was still stronger than seen at the start of the year. According to respondents, increases in charges again largely reflected the pass through of higher input costs to customers.

Malcolm Buchanan, Chair of the NatWest North Regional Board, said: "There were some encouraging signs from the latest Yorkshire & Humber Growth Tracker, particularly with regards to customer demand which stabilised following a period of decline amid geopolitical issues. Although still muted, the inflow of new orders was such that firms posted softer reductions in output and employment levels as the second half of the year began. Adding to the alleviation of headwinds facing firms, inflationary pressures also cooled.

"While conditions looked to be moving positively in July, firms remained only cautiously optimistic regarding the future as geopolitics continues to loom over the global economy and has the potential to throw the nascent recovery off course."

Performance in relation to UK

The fall in output in Yorkshire & Humber contrasted with a rise across the UK as a whole, with only Scotland posting a sharper reduction.

Business confidence ticked down in July and remained relatively muted amid ongoing uncertainty and worries about geopolitics. Nonetheless, companies were still optimistic overall that business activity will rise over the coming year. Positive sentiment reflected business investment plans, hopes for an improvement in economic conditions and higher new orders. Sentiment in the region was slightly lower than the UK average.

Despite slowing for the second month running, the fall in employment in the region was still sharper than the UK average.

As has been the case in each month for almost three-and-a-half years, backlogs of work decreased during July. Respondents indicated that new business inflows remained muted, meaning spare capacity was available to work on outstanding business. The latest fall in backlogs was solid, but the least marked for two years.

While cost inflation in the region outpaced the UK average, the opposite was true for selling prices.