Business activity in the south west has fallen for the first time this year, according to the latest findings from NatWest. 

The NatWest South West PMI® 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 – dropped to 49.5 in June, from 51.7 in May.

This is below the neutral 50.0 threshold to signal a renewed fall in business activity.

Though only slight, it marked the first reduction in private sector activity across the south west since January, and contrasted with a solid expansion of output across the UK as a whole. 

The fresh fall in activity was linked to weaker demand conditions, with new business also contracting for the first time in five months.

Paul Edwards, chair of the NatWest south west regional board, said: "The south west's economy had a disappointing end to the second quarter, with businesses noting lower levels of activity and new work for the first time in five months.

"Greater pressure on client budgets due to the rising cost of living and higher borrowing costs had reportedly strained sales, while there were also reports of customers reining in spending due to the weaker economic climate.

"However, optimism around the 12-month outlook for output improved to a three-month high. This upbeat mood supported a further strong rise in employment, which in turn led to a steeper fall in backlogs.

"Cost pressures meanwhile eased to their weakest in over two years, adding to hopes that the worst of the cost of living crisis is now behind us."

Inflationary pressures meanwhile eased, with both input costs and selling prices rising at the weakest rates in over two years.

Encouragingly, optimism around the 12-month outlook for output strengthened, which supported a solid rise in employment. 

After rising in each of the previous four months, the amount of new business placed with private sector firms in the south west declined during June.

Though modest, the reduction contrasted with a mild expansion in new orders across the UK as a whole. 

Although companies reported weaker output and new order trends in June, optimism around the year ahead improved to its highest for three months.

Firms anticipated that forecasts of stronger economic conditions, planned company expansions and new project starts could support output growth over the next 12 months.