East Midlands firms signalled a fresh fall in output during September, according to the latest NatWest Regional Growth Tracker, but inflationary pressures eased on the month.
At 47.4 in September, the headline NatWest East Midlands Business Activity Index was down from 53.3 in August, and indicated a drop in output levels. Nonetheless, the average reading over the third quarter was the highest since the final three months of 2024. The decrease contrasted with growth seen in August, as companies highlighted weak demand conditions and a steep downturn in new orders.
The pace of decline in new business quickened, as a subdued sales environment also dampened business confidence and employment.
Meanwhile, cost pressures eased to the softest in nine months, with East Midlands businesses moderating the pace of charge inflation in a bid to remain competitive and drive new sales.
Lisa Phillips, regional managing director, Midlands and East, commerical mid markets, said: “There’s been grounds for optimism in September as the pace of increase in input prices softened to the slowest in 2025 to-date. Subsequently, firms were able to offer more competitive prices to their customers, as the pace of output charge inflation also cooled.
“However, the region’s private sector ended the third quarter on a less stable footing as a drop in new orders led output to dip into contraction territory. Customer hesitancy and uncertainty in the economic outlook weighed on demand conditions and business confidence.”
Performance in relation to UK
The contraction in output diverged from the UK average which signalled broadly unchanged activity levels on the month.
September data indicated a further contraction in new business at private sector firms in the region, with the rate of decline accelerating. The pace of decrease was softer than the recent record seen in July, however. The contraction in new sales was the strongest of the 12 monitored UK areas.
Although East Midlands firms remained confident of a rise in output over the coming year the degree of optimism slipped and was below the series average. Nonetheless, the level of confidence was only slightly below the UK trend.
East Midlands private sector firms registered a sharper decline in employment at the end of the third quarter. The strong decrease was sharper than the UK average, but less marked than was seen on average at the start of the year. Reduced pressure on capacity at firms was signalled through a further contraction in backlogs of work during September. Of the 12 monitored UK areas, only Wales recorded a steeper decline in unfinished work.
Private sector firms in the East Midlands indicated a further rise in cost burdens during September. Higher operating expenses were linked to hikes in wage bills, as well as greater raw material and transportation prices. The rate of increase was the second-slowest of the 12 monitored UK areas, faster than only the North East.
In an effort to remain competitive, companies recorded a less marked rise in output prices in September. The pace of increase was the weakest in three months and below the series trend. The rate of charge inflation was also softer than the UK average, with only Wales, the North West and Scotland seeing slower upticks in selling prices.
