The headline NatWest East Midlands PMI® Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – posted 47.3 in January, up from 45.4 in December.
The latest data signalled a solid decline in business activity, albeit the slowest since last July. Lower output was often attributed to weak client demand and reduced customer spending amid strong inflationary pressures. A softer contraction meant East Midlands firms bucked the wider UK trend which pointed to a faster decline in activity.
Private sector firms in the East Midlands recorded a further decline in new orders at the start of 2023. The fall in new business was solid overall and among the fastest of the 12 monitored UK regions, slower than only Scotland and Northern Ireland.
Lower client demand was often linked to economic uncertainty and reduced customer spending amid strong inflation. Nonetheless, the rate of contraction eased to the softest since last July.
Expectations regarding the outlook for output over the coming year across the East Midlands private sector strengthened in the opening month of the year.
The degree of confidence picked up to the highest since May 2022, but remained weaker than the UK average. Nevertheless, greater positive sentiment was often attributed to planned investment and hopes of the acquisition of new customers and stronger client demand.
Workforce numbers at East Midlands private sector firms expanded in January, following back-to-back contractions in November and December. Where a rise in employment was noted, firms linked this to efforts to expand capacity. That said, the rate of job creation was only fractional overall and well below the average for 2022. The UK average, however, signalled unchanged staffing numbers on the month.
Data for the opening month of 2023 signalled another monthly contraction in the level of outstanding business at East Midlands private sector firms. The decrease in backlogs of work was commonly attributed to sufficient capacity to process incoming business. The rate of decline eased notably from that seen in December, but was quicker than the UK average.
East Midlands private sector firms indicated another marked rise in input prices in January. The increase in cost burdens was reportedly due to greater fuel, energy, wage and material bills. The region saw the sharpest uptick in input costs of the 12 monitored UK areas, despite the rate of inflation softening for the second-month running to the slowest since April 2021.
Private sector firms in the East Midlands recorded a further substantial increase in selling prices during January. The rate of charge inflation was quicker than the long-run series average and broadly in line with that seen across the UK as a whole. Anecdotal evidence stated that greater output charges stemmed from the pass-through of higher input costs to clients. That said, the pace of increase in selling prices was the slowest since August 2021.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “2023 started in a muted tone across the East Midlands private sector as firms continued to record solid contractions in output and new business. High inflation squeezed customer spending further, with the region registering one of the fastest downturns in new orders of the 12 monitored UK areas.
“Nevertheless, companies were buoyant in their expectations for future output, as business confidence strengthened. At the same time, firms registered renewed job creation, albeit only fractional overall.
“Although inflationary pressures remained historically elevated and continued to place downward strain on demand conditions, rates of increase in costs and selling prices cooled in January. The ability to pass-through any cost savings to customers will likely provide hope to businesses of a pick-up in customer spending as the year progresses.”
