The headline 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 - posted above the neutral mark of 50.0 at 51.3 in December.

This was up from 49.8 in November and signalled the second time in the past three months that business activity across the region has expanded.

Though modest and softer than seen at the national level, the rate of growth was the best recorded since May. According to panel members, improved demand conditions and a fresh rise in sales helped to revive business activity in December.

Adjusted for seasonal variation, the New Business Index posted above the neutral 50.0 level to signal a renewed increase in sales across the South West private sector in December.

Though only marginal, it marked the first upturn in new work for seven months, with panellists often noting that improved marketing and firmer demand conditions had supported growth. A renewed expansion in new business was also recorded across the UK as a whole, and one that was slightly quicker than that seen in the South West.

South West private sector companies continued to express optimism when assessing the one-year outlook for output in December. The degree of positive sentiment picked up to a four-month high and was stronger than the series average, albeit softer than the UK-wide trend.

Companies often anticipated that greater investment, new marketing strategies and a recovery in the broader economic climate would support higher levels of business activity over the course of 2024.

Private sector companies operating in the South West signalled a reduction in staff numbers for the fourth straight month in December. Though modest, the rate of job shedding was the most pronounced in all of 2023, with firms generally linking falls to the non-replacement of voluntary leavers. Employment across the UK private sector as a whole also declined again at the end of the final quarter, although only marginally.

Average input prices faced by South West private sector firms continued to increase at the end of the year. Although inching down to a 35-month low, the rate of inflation remained comfortably above the series average and sharp. Operating expenses also rose at a marked pace across the UK as a whole. According to anecdotal evidence, suppliers had often hiked their prices due to the strong inflationary environment. Greater staff costs were also cited.

Companies in the South West generally responded to rising costs by hiking their own selling prices again in December. Output charges have now increased in each month for the past three years. Though sharp, the rate of inflation was the second-softest since February 2021, having remained on a broadly downward trend since the start of 2023. The pace of increase was also slightly below the national average.

Paul Edwards, chair of the NatWest South West Regional Board, commented: "Businesses in the South West had a positive end to 2023, according to the latest PMI survey data, with firms noting fresh increases in output and new orders.

"Firmer underlying demand conditions and improved marketing strategies reportedly helped to lift the region's performance in December, which in turn led firms to become more optimistic for the year ahead.

"However, inflationary pressures remain a prominent feature of the survey, and although we have seen the rate of cost inflation ease notably from post-pandemic highs, it remains sharp overall. This is leading to further steep increases in selling prices and a continued squeeze on margins.

"Amid strong cost pressures, firms also remained cautious around employment, and generally opted not to replace voluntary leavers which led to a further fall in staffing levels. It is hoped that firmer demand conditions in the months ahead will support renewed hiring efforts in 2024."