Wednesday, February 28, 2024

East Midlands business activity growth accelerates to fastest since May 2022

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 at 51.6 in January, up from 50.7 in December, to signal the fastest rise in output at East Midlands firms since May 2022.

Anecdotal evidence suggested the expansion was driven by stronger client demand and a renewed rise in new business. The pace of growth was only marginal, however, and slower than the UK average.

East Midlands private sector firms signalled a renewed rise in new orders during January, thereby ending a six-month sequence of contraction. The rate of growth was only marginal, but the second-sharpest of the 12 monitored UK regions.

Increased new business was linked by panellists to stronger client demand and new customer acquisitions.

January data signalled an uptick in business optimism among East Midlands firms. The degree of confidence was the strongest since last September, despite still being below the series average. Companies noted that motivated sales staff, hopes of stronger client demand and investment in new machinery and facilities boosted positive sentiment.

Nonetheless, the level of optimism was weaker than that seen across the UK as a whole.

East Midlands private sector firms recorded a seventh successive monthly decrease in staffing numbers at the start of the year. The pace of job shedding picked up from December, but was still only marginal overall. Businesses stated that lower employment stemmed from the non-replacement of voluntary leavers due to cost-cutting efforts, and previously subdued demand which resulted in sufficient capacity to fulfil incoming orders.

The fall contrasted with the trend seen across the UK as a whole which pointed towards a slight rise in workforce numbers.

January data indicated a further contraction in backlogs of work at East Midlands companies. The pace of decline eased, however, to the slowest since October 2022 and was only marginal overall.

Of the 11 monitored regions that recorded a decrease in work-in-hand, firms in the East Midlands registered the weakest fall. Only businesses in London saw a rise in incomplete work.

East Midlands firms continued to see a substantial increase in input prices during January, albeit with the pace of inflation slowing slightly from December. The rate of increase was sharper than the series average and in line with that seen at the UK level.

Higher costs were attributed to greater wage bills, and increased supplier and shipping prices.

Businesses in the East Midlands raised their output charges again in January, thereby extending the sequence of inflation seen since December 2020. Higher charges were reportedly due to the pass-through of greater costs to customers. That said, the pace of increase slowed to the weakest since January 2021 as some companies mentioned discounting and efforts to remain competitive and drive new sales.

Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “East Midlands firms signalled a more positive start to 2024 as output expanded at a quicker pace, supported by a renewed rise in new business. An improvement in demand conditions also helped buoy business confidence in the year-ahead outlook, as the level of optimism jumped to a four-month high.

“That said, although backlogs of work contracted at the softest rate since October 2022, as signs of pressure on capacity emerge, firms continued to cut employment in a bid to save costs. Despite the rate of increase slowing, input costs rose at a further historically marked pace. Hikes in selling prices softened notably, however, amid reports of discounting and concessions being made, with output charges increasing at the slowest rate in three years.”

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