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 51.2 in March, little-changed from 51.1 in February.
Although signalling only a marginal expansion in business activity that was slower than the UK average, the rise in output was the fastest in ten months. Where survey respondents noted an increase in activity, this was attributed to stronger client demand and a faster rise in new business.
Private sector firms across the East Midlands registered a second successive monthly increase in new orders in March. The upturn in new business was reportedly linked to stronger demand and greater client activity. Although only marginal, the rate of growth was the fastest for a year. That said, the pace of expansion was below the UK average and among the slowest of the 12 monitored UK regions (faster than only Yorkshire & Humber and the North West).
Private sector firms in the East Midlands signalled a stronger degree of confidence in the outlook for output over the coming year during March. The level of optimism picked up to the highest in over a year and was slightly greater than the UK average. Positive sentiment across the region was linked to hopes of increased client demand, investment in new product development and diversification.
March data indicated a renewed fall in employment across the East Midlands private sector. The decrease in workforce numbers followed back-to-back expansions seen in the opening two months of 2023. Although only fractional, the decline in staffing numbers was attributed to the non-replacement of voluntary leavers amid cost-cutting initiatives.
The slight contraction in employment contrasted with a stabilisation in headcounts seen across the UK as a whole.
East Midlands firms recorded a sixth successive monthly decline in incomplete business at the end of the first quarter. The rate of contraction quickened slightly and was solid overall. Of the 12 monitored UK regions, only Wales registered a sharper drop in backlogs of work. Subdued demand conditions in recent months meant companies had sufficient capacity to process incoming new work.
East Midlands companies noted a further softening in the rate of input cost inflation during March. Although still marked, the pace of increase was the slowest since February 2021 and much weaker than those seen throughout 2022. Nonetheless, the historically elevated rise in operating expenses was linked to greater material and utility costs, alongside increased wage bills.
Of the 12 monitored UK regions, only the North East and London registered steeper upticks in input prices.
March data signalled a sharp increase in output charges at East Midlands private sector firms. Companies commonly mentioned the pass-through of higher costs to clients as driving inflation. That said, the rate of increase in selling prices eased for the fourth month running and was the softest since February 2021. At the UK level, only the East of England recorded a slower rise in output charges.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “Companies in the East Midlands registered another monthly expansion in activity in March, thereby ending the first quarter on a more positive note. New business rose at a quicker pace, as client demand reportedly strengthened.
“Nonetheless, historically subdued demand conditions and further marked hikes in operating expenses led firms to cut their workforce numbers. Cost-cutting initiatives were put in place as many noted sufficient capacity to work through incoming business.
“On a more positive note, inflationary pressures softened again. Rates of input cost and output charge inflation eased to the slowest for over two years, as some material prices moderated.
“Despite muted demand conditions and still challenging rates of inflation, firms’ confidence in the outlook for output reached the strongest for over a year. East Midlands firms were broadly in agreement with their counterparts across the UK as a whole, who also recorded more upbeat expectations.”
