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RBS report: This is what a slowdown looks like

Written by Paul Williams

Tuesday, 11 November 2008

New work down, new business down, job shedding up, and thankfully, inflation slowing.

The Royal Bank of Scotland (RBS) has released a report indicating that London is in the throes of a slowdown.

The latest PMI (Purchasing Managers' Index) Reports produced for The Royal Bank of Scotland by NTC Research reveals that new work fell at its fastest rate since August 2001.

October’s drop in cost inflation was also largest in survey history

October survey data from RBS highlighted a contraction of business activity in the capital for the first time in three months, led by a steep downturn in incoming new work.

The service sector remained the principle source of weakness, as widening financial market difficulties resulted in a sharp reduction of client demand.

Job shedding was broad-based across the private sector economy in October, with job cuts largely in response to the worsening business outlook and a series record fall in outstanding work. Meanwhile, input cost inflation eased considerably since the previous month and was the lowest since October 2007.

Sharp reduction of new business

The volume of new business received by private sector companies in London declined for the fifth time in the past six months and at the fastest pace since August 2001. Anecdotal evidence from the survey panel suggested that global financial market turmoil had led to client caution when committing to new business expenditure.

Lower levels of activity

A sharp reduction of incoming new work was the key factor that contributed to a decline in business activity in October. However, private sector output in London fell at a much slower pace than the UK average. Sector data showed that the contraction was primarily confined to the service economy.

Job shedding fastest since May 2003

Staffing levels in the London private sector economy fell for the sixth consecutive month in October. The latest decline in employee numbers was the steepest since May 2003 and broadly in line with the UK average.

Firms generally commented that job shedding reflected lower workloads at their units, as new business volumes were insufficient to replace completed work.

This was highlighted by a sharp and accelerated reduction of backlogs in October, with the rate of decline the fastest in the nine-year series history.

Input price inflation slowed considerably

Latest data pointed to the largest drop in average input cost inflation since the survey began in January 1997. There were a number of reports that falling prices for fuel and other oil-related inputs had contributed to slower overall cost inflation.

Manufacturers also noted that the retreat in commodity prices on world markets had been passed on by suppliers in October.

The combined effects of falling market demand and reduced cost pressures led to lower output charge inflation in October. Data indicated that the latest increase was the slowest in the current thirty-five month period of rising output prices.