Growth in the private sector slumped to a seven-month low in July, sparking a new wave of job losses, according to a gloomy report published today.

The Lloyds TSB Purchasing Manager's Index, which measures the combined output of the manufacturing and service sectors in the region, showed new orders rose at their lowest level since the recession ended in May 2009, with output levels almost at a standstill.

Manufacturers were hit hardest as customers looked to destock amid concerns over lacklustre future demand.

This, combined with rising raw material, transport and energy costs and fears about the economic outlook, led to the first job cuts in six months as companies sought to cut overheads amid downgraded forecasts for future output.

Price inflation was at a one-and-a-half year low as firms shied away from passing on rising costs to customers.

Service providers trimmed their staff numbers to a greater extent than manufacturers.

Those firms that did experience an upturn in new orders reported that the work was coming from overseas, fuelled by successful marketing activities.

Leigh Taylor, area director for Lloyds TSB Commercial in the north west, said: “North west private sector output grew at the second-slowest pace of all the UK regions in July.

“Manufacturing was the main area of weakness, with falling production in the sector contrasting with strong growth earlier in the year.

“Companies in the region cited reduced confidence in the economic outlook as having a negative influence on business activity and inflows of new orders in July.

“This in turn led to a reversal of the recent upward trend in private sector employment, with July’s survey showing a reduction in staffing levels for the first time in six months.”

The gloomy outlook was shared by SMEs responding to a Confederation of British Industry survey, which saw the first notable decline in optimism for two years.

Lucy Armstrong, who chairs the CBI's SME council, said: “Orders and production have been strong for the UK's smaller manufacturers this quarter, but growth is expected to stagnate in the next, and sentiment has fallen for the first time in two years.

“Confidence has also been affected by global and political uncertainty over issues such as the euro crisis and the US debt ceiling.”

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