The end of 2024 saw job shedding accelerate and December marked a fractional decline in business activity – but the latest index of optimism for Gloucestershire and the South West ended up near-as-damn-it to the "no change" setting, offering some cause for optimism.

The latest findings from the NatWest bank's ongoing Purchasing Managers' Index survey signalled the first fall in business activity for 10 months at the end of 2024, with new business intakes slipping into contraction.

But the South West Growth Tracker Business Activity Index stood at 49.7 in December, meaning that the seasonally adjusted index that measures the month-on-month change in the combined output of the region's manufacturing and service sectors was close to the 50.0 no-change mark and indicative of only a fractional rate of reduction.

A spokesperson said: "According to local firms, output volumes were negatively impacted by the Autumn Budget, high borrowing costs and cautious spending among clients. December data highlighted a moderate decline in new business placed with private sector companies in the South West, ending a one-year sequence of growth."

According to survey participants, client hesitancy, tamed consumer spending and the late-Autumn Budget announcement restricted sales. Elsewhere, firms trimmed headcounts at the fastest rate in over four years - and one that was sharper than that seen at the UK level. Panellists indicated that the upcoming rise in staff costs caused redundancies and prevented them from replacing leavers.

The report update added: "Not only did companies in the South West continue to report rising operating expenses in December, but also signalled the steepest increase for eight months. Firms reported having paid more for cardboard, copper, electrical items, energy, insurance premiums, plastics and wood."

Commenting on the retention of condidence among South West firms against this backdrop, including the prediction that investment could be expected to drive growth, Faye Long, Chair of the NatWest South West Regional Board, said: "South West companies ended 2024 on a weaker footing than generally seen throughout the year, but they were optimistic regarding growth prospects in 2025.

"In their view, most of the weakness observed in December stemmed from the Autumn Budget announcement, which caused anxiety among clients and led them to restrict purchases. Local firms reduced output volumes and payroll numbers amid the upcoming increases in employer National Insurance and the minimum wage.

"Some panellists indicated that their suppliers are already charging more for inputs as a result of future increases in staff costs. A pick-up in cost pressures underpinned a sharper upturn in selling prices at a time when staying competitive is crucial to support sales."

Compared to the rest of England, the drop in South West output was the slowest of the nine regions and nations where a contraction was recorded. Growth was sustained in London, the East Midlands and the North East. In addition to the South West, new orders also fell in nine other regions and nations. Growth was only seen in London and the North East.

The overall level of positive sentiment fell to a two-year low, however, as panel members were worried about the detrimental impact of the Budget on employment costs, client spending and consumers' purchasing power. Local firms were the least optimistic among the nine English regions.

The analysis added: "One factor that dampened employment was a lack of pressure on firms' operating capacities. Despite the fall in staff numbers, local firms signalled the fastest drop in work pending completion since September 2023. The reduction was the first since August. Backlogs also decreased at the national level, and to broadly the same extent as in the South West."

Additionally, the rate of cost inflation was well above its long-run average and the second-highest of the 12 monitored UK regions and nations (behind the North East). As a result of rising expenses, prices charged for local goods and services continued to increase. The rate of charge inflation was historically sharp – and above the UK average.

Mark Owen, editor of Punchline-Gloucester.com added: "This may be a positive headline, but the over-riding sentiment among the people who we talk to every day, across every sector, is that employers are under immense financial pressure from the rises to NI contributions and the national living wage now approaching. The effect is inescapable and it translates into an unavoidable impact, both in price rises in shops and the pound in every business budget.