Steadying economic conditions and softening inflationary pressures are giving East Midlands firms reasons for confidence, according to the latest NatWest Regional Growth Tracker.
The headline NatWest East Midlands Business Activity Index rose to 49.3 in May from 47.5 in April. Although the reading represented a fifth successive monthly fall in output, the latest reduction was only slight and the weakest since January. Where output decreased, panellists generally linked this to subdued demand conditions and falling new orders.
Although companies in the East Midlands continued to scale back their workforce numbers solidly during May, the latest reduction was the least pronounced since last November. A number of respondents indicated that they had been reluctant to replace departing staff, in some cases due to cost considerations. That said, other firms had opted to hire additional workers during the month, limiting the overall pace of job cuts.
After dropping to a 28-month low in April, business confidence rebounded in May and was the strongest in the year-to-date. In fact, sentiment in the East Midlands was the third-highest of the 12 monitored regions and nations, behind only the West Midlands and North West.
The pace of input cost inflation eased in May, but remained sharp and was above the series average. Respondents again mainly linked higher input prices to rises in the National Minimum Wage and employer National Insurance contributions.
Sebastian Burnside, NatWest chief economist, said: “While companies in the East Midlands continued to face a challenging demand environment in May, there were some signs in the latest Growth Tracker of light at the end of the tunnel.
“Business activity moved closer to stabilisation and confidence in the future rebounded. Companies subsequently moderated the pace at which they scaled back their workforce numbers.
“While firms again reported the inflationary impact of recent labour market policy changes, rates of inflation of both input costs and output prices both softened in May, providing some respite for companies and customers alike and adding to signs that the worst of the recent soft-patch may have passed.”
