Business confidence and output is on the rise across the East of England - but there are worrying signs for jobs, a study suggests.

Business activity has risen across the region at its quickest rate since 2018, according to the NatWest East of England Business Activity Index.

But employment remains a key concern, with firms reporting lower staffing levels due to rising costs and excess capacity.

The index – a seasonally adjusted measure of month-on-month change across manufacturing and service businesses – showed the first increase in business activity since before lockdown measures were introduced in March to curb the coronavirus pandemic, bringing to an end four months of decline.

MORE – Retailer’s booze and meat sales shoot up during lockdown as more men shopThe headline index figure for July was 56.3 compared to 49.1 in June, taking it into positive territory, with 50.0 being neutral.

But fears of a second wave or reimposed restrictions have hit sentiment.

The seasonally adjusted Employment Index showed a fifth successive monthly decline in employment across the East of England’s private sector in July.

However, although still sharp the rate of job losses was the softest since March. Panel members frequently cited redundancies linked to the pandemic, and furloughed staff which continued to weigh on workforce numbers, said NatWest.

Work backlogs also fell, with employers suggesting they had ample capacity for their current workloads.

As has been the case in each month since November 2018, outstanding work at private sector firms in the East of England fell in July. Though solid, the rate of backlog depletion was the softest recorded since February. When explaining the latest drop in unfinished work, panel members often mentioned having ample capacity to process current workloads.

Companies also said they faced higher costs and supplier shortages, including higher wages and increased transportation costs.

NatWest Midlands and East regional board member John Maude said business confidence is continuing to recover, rising in July to its highest since May 2016 showing firms expected market conditions and demand to improve in the coming months.

“Companies across the East of England saw a big boost to business activity and sales in July as more parts of the economy reopened and clients returned to work,” he said.

“The steep increases in output and orders add to hopes that the region is getting back on its feet after the severe disruption caused by Covid-19.”