BUSINESS activity in the East of England fell at its fastest rate for more than three years last month, with marked declines in both output and new orders, according to a new survey.

However, the latest Lloyds TSB East of England PMI report also shows that firms continued to increase staffing levels during July.

Input cost inflation also slowed further, while output prices declined for the second consecutive month.

The headline seasonally adjusted Lloyds TSB East of England Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – fell to 45.4 in July, down from 49.3 in June, signal a second successive reduction in activity.

And the decline in the region was much faster than the average for the UK economy average and was the sharpest seen in the region since February 2009.

Respondents indicated that falling new orders had been the main factor leading to the decrease in output. Both sectors posted reductions in activity, led by manufacturers.

A similar trend was recorded for new business in July, with the third successive decline at East of England firms comparing with a fractional rise across the UK as a whole. Panellists reported that fragile client confidence had led to the latest fall in new business.

July data pointed to a steep reduction in outstanding business in the region, and the fastest since August 2009. Respondents indicated that the latest decrease largely reflected the sharp fall in new business.

But despite the reduction in workloads, companies in the East of England continued to take on extra staff during July, although the rate of job creation slowed for the third month running and was only slight.

The rate of input cost inflation at East of England companies continued to slow during the month, and was the weakest in 38 months. The rise in input prices in the region was slightly slower than that recorded at the UK level. Reports from survey respondents mainly cited lower raw material prices during the latest survey period.

Output prices decreased for the second consecutive month in July, with the pace of reduction broadly similar to that recorded in the previous month. Both sectors registered falling charges, with the reduction in output prices in the region being faster than the UK average.

Steve Elsom, area director for Lloyds TSB Commercial in East Anglia, said: “The East of England suffered another drop in business output levels during July, with the fastest rate of contraction in three years.

“The worrying acceleration in the rate of decline shows that the region continued to underperform relative to the UK as a whole. This suggests that the second half of 2012 is already presenting a difficult operating environment for local firms.”