Output fell for the third consecutive month in the East of England as new business dries up amid mounting economic challenges, a monthly purchasing bosses' survey shows.

A slowdown in the region's economy is becoming more apparent as inflation and fears of recession dampen demand, the NatWest (PMI) Business Activity Index for August reveals.

It found a sharp fall in private sector activity as the region's firms are plagued by weak demand and cautious customer spending.

The index – a seasonally adjusted index measuring month-on-month change in the combined output of the region’s manufacturing and service sectors - measured 43.5 during August, down from 46.8 in July. Anything below 50 takes the index into negative territory. The rate at which it shrank has quickened - outpacing the UK as a whole.

Optimism in the region was also weaker than the UK average as concern about the next 12 months weighed on sentiment.

There was a rise in employment - extending the run of expansion to 19 months - as firms raised staffing levels in anticipation of higher demand. But the rate of job creation eased as work backlogs fell.

Of the 12 regions monitored, the rate of backlog depletion in the East of England was the third-most severe across the UK, behind the South West and the North East.

The East of England's private companies also reported a rise in costs - stretching the current run of inflation to 27 months - although the rate of increase eased. Higher energy and transport costs and material shortages were cited. The region's firms continued to put up prices in response.

John Maude, who sits on NatWest Midlands & East Regional Board, said: "Latest PMI data revealed a further contraction in business activity across the East of England during August, as recessionary fears and inflationary pressures restrained customer demand. Moreover, a drop in new orders resulted in a lack of pressure on operating capacity, as backlogs fell at the quickest pace in 26 months, while growth in employment moderated during August.

"We did notice input price inflation ease, as the pace of increase softened to a 15-month low. However, upward pressure on prices and, as a result, output charges, remains stubbornly high, threatening demand as the cost-of-living crisis worsens.

"A slowdown in the market is becoming more apparent. Concerns are also rising of the downturn gaining momentum as confidence levels across surveyed business remain subdued in the context of historical data."