South Devon business: Challenging 2024 but optimism for 2025?

How did the South West economy fare at the end of 2024 and what does 2025 hold in store?

The Chancellor's Budget did nothing to instil confidence in local businesses who now face the extreme challenge of rising costs including a rise in National Insurance contributions.

How will that future investment, jobs, capacity and inflation?

Each month the NatWest releases details of its NatWest Growth Tracker report for the South West giving an insight into how West Country companies are performing.

Its survey results for the end of 2024 and December have just been published and there may just be a glimpse of hope for the future.

South West Businesses optimistic for 2025

• Activity and new orders fall at end of 2024

• Job shedding accelerates as cost pressures mount

• December sees fractional decline in business activity

South West companies signalled the first fall in business activity for ten months at the end of 2024, as new business intakes slipped into contraction. 

However, at 49.7 in December, the South West Growth Tracker 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 – was close to the 50.0 no-change mark and indicative of only a fractional rate of reduction. 

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.

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.

South West firms remained confident of a rise in output over the course of the coming 12 months, as marketing efforts and investment were 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."

Performance in relation to UK

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.

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.

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.

The NatWest South West Growth Tracker is compiled by S&P Global from responses to questionnaires sent to South West companies that participate in S&P Global's UK manufacturing and services PMI surveys.

Survey responses are collected in the second half of each month and indicate the direction of change

Purchasing Managers’ IndexTM (PMI®) surveys are now available for over 40 countries and also for key regions including the eurozone. They are the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more, go to www.spglobal.com/marketintelligence/en/mi/products/pmi.

About NatWest

NatWest serves customers in England and Wales, supporting them with their personal, private, and business banking needs. NatWest helps customers at all stages in their lives, from opening student accounts, to buying their first home, setting up a business, and saving for retirement. Alongside a wide range of banking services, NatWest offers businesses specialist sector knowledge in areas such as manufacturing and technology, as well as access to specialist entrepreneurial support.

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