Friday, August 14, 2020

Private sector activity growth eases to 13-month low

Private sector activity at East Midlands firms increased at the weakest rate since February 2015 in March according to the latest Lloyds Bank East Midlands Business Activity Index.

The seasonally adjusted index, which measures the combined output of the region’s manufacturing and service sectors, posted 53.9 in March, down from 55.4 in February, signalling a weaker increase in private sector output in the region. The latest reading was the lowest in over one year, but was nevertheless in line with the UK average (53.6).

Behind this was a further slowdown in new orders, which rose at the softest pace in over one year. As a result, firms were more cautious towards their hiring policies, with the rate of job creation easing to a three-month low. On the price front, input costs rose at the sharpest rate since last July, leading to the strongest increase in charges in 13 months.

Contributing to a softer expansion in activity was the weakest increase in new orders since February 2015. Furthermore, the upturn in new work was slower than that seen across the UK as a whole. According to panellists, market uncertainty weighed on new business growth.

In other news, employment growth eased to a three-month low in March. That said, the rate of job creation in the region was broadly in line with the UK average. Those firms reporting higher payroll numbers commented on increased output requirements.

Volumes of business outstanding were accumulated in March, highlighting pressure on capacity. The service sector was the main driver behind the increase in backlogs, as manufacturers reported a decrease. In comparison, volumes of unfinished work at the UK level declined.

In March, input prices rose at the quickest rate since last July. Surveyed companies linked greater costs to the living wage and higher prices paid for imported raw materials. However, the rate of inflation was softer than the UK average.

Prices charged by companies in the East Midlands rose at the sharpest pace in over a year and faster than the UK average.

Jon Pulford, area director, SME Banking, East Midlands, Lloyds Bank Commercial Banking, said: “The East Midlands economy improved at a slower rate in March, with business activity growth dropping to a 13-month low. Contributing to the slowdown was a slower increase in new business, the weakest in over a year. Firms were cautious towards their hiring policies as a result, with the rate of job creation below the UK average. Elsewhere, higher imported raw material prices as well as the implementation of the living wage led to an increase in average cost burdens, though firms were able to lessen the pressure on margins by raising prices”.

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