Although business activity was broadly unchanged during July, new orders contracted at a sharper pace, according to the latest NatWest Regional Growth Tracker.
At 50.1 in July, the headline NatWest East Midlands Business Activity Index was up from 49.7 in June, and signalled a broad stabilisation in output levels at private sector firms.
Underlying data captured a more challenging picture, however, as new sales declined at a steep rate.
On the price front, rates of input cost and output charge inflation were little-changed from those seen in June. Despite companies struggling with pricing power, cost burdens increased at a historically elevated pace.
Business confidence in the outlook improved but remained historically subdued, with firms also cutting workforce numbers further amid a sustained drop in new orders.
Lisa Phillips, regional managing director, Midlands and East, commerical mid markets, said: “The East Midlands private sector signalled a challenging start to the second half of 2025. Despite output levels broadly stabilising on the month, underlying data indicated subdued demand conditions and a marked drop in new orders. The pace of contraction was also the steepest of the 12 monitored UK regions and areas.
“Meanwhile, the impact of recent increases to National Insurance contributions and the minimum wage continued to play out in sharp upticks in cost burdens and a further reduction in headcounts.
“Although pricing power was squeezed again, firms were able to raise their output charges. Moreover, business confidence improved amid hopes of stronger demand conditions in the coming months.”
Performance in relation to UK
Although the seasonally adjusted Business Activity Index posted above the 50.0 no-change mark, the latest data signalled broadly unchanged output levels in July. The UK average, however, indicated a modest upturn.
July data signalled a tenth consecutive monthly decline in new business at East Midlands private sector firms. The rate of contraction accelerated notably to the steepest since December 2022, as client demand reportedly slowed significantly. Moreover, the pace of decline in new sales was the quickest of the 12 monitored UK regions and areas.
Meanwhile, the level of optimism at East Midlands businesses improved. Although still below the long-run series average, firms were more upbeat in the outlook for output over the coming year than in June. The degree of positive sentiment was stronger than the UK average.
Workforce numbers at East Midlands private sector firms contracted again in July, as has been the case in each month for over two years. The pace of decline was unchanged from June, and solid overall. The pace of job shedding was softer than the UK average, however.
Meanwhile, the pace of cost inflation was among the slowest of the 12 monitored UK regions and areas, with only the North West and West Midlands signalling weaker rises in operating expenses. That said, the rate of charge inflation was muted in the context of the series history and the joint-slowest of the 12 monitored regions and areas (alongside Scotland).
