Output grew at the sharpest pace in 18 months during August, despite a further contraction in new business, according to the latest NatWest Regional Growth Tracker.
At 53.3 in August, the headline NatWest East Midlands Business Activity Index was up from 50.1 in July and signalled a solid upturn in output at firms in the East Midlands.
Meanwhile, new orders continued to fall but at the slowest pace in nine months.
Firms were buoyed by less subdued demand conditions, as business confidence ticked up to the strongest in 2025 so far. Nonetheless, the pace of job shedding accelerated amid lower new order intakes.
On the price front, inflationary pressures picked up as input costs and output charges rose at the fastest rates since May and April, respectively.
Lisa Phillips, regional managing director, Midlands and East, commerical mid markets, said: “August data signalled a more upbeat performance in the East Midlands private sector as output rose at the fastest pace since February 2024. The decline in new orders softened notably amid signs of less hesitancy at customers, which spurred a boost to business confidence.
“Underlying business conditions remained tricky, however, as cost-cutting measures and spare capacity led to a faster drop in employment.
“Meanwhile, strain on margins remained as an acceleration in input cost inflation pushed firms to hike selling prices at a sharper pace. Fragile purchasing power at customers may hamper tentative signs of improvements in demand if inflationary pressures continue to intensify.”
Performance in relation to UK
The rate of increase in business activity at East Midlands firms was the quickest since February 2024 and broadly in line with the UK average.
Private sector firms in the East Midlands indicated a further decline in new work midway through the third quarter, as has been the case in each month for almost a year. The pace of contraction eased, however, to only a modest rate that was the softest since November 2024. Nonetheless, the decrease in new sales contrasted with an expansion seen at the UK level.
The level of confidence rose to the highest in 2025 so far and was broadly in line with the long-run series average. Companies in the East Midlands were among the most upbeat of the 12 monitored UK areas, with only the West Midlands, London and the South East recording greater positive sentiment.
August data signalled a sharper fall in employment at East Midlands firms. The rate of contraction in staffing levels was the steepest since April and strong overall. Lower workforce numbers were commonly linked to cost-cutting measures. The pace of decline in headcounts was quicker than the UK average.
Private sector firms in the East Midlands indicated a quicker increase in operating expenses midway through the third quarter. The pace of cost inflation was the fastest since May and steeper than the long-run series average, but slightly softer than the UK trend.
In line with the trend for input costs, companies registered a historically elevated rise in selling prices in August, but the rate of inflation was softer than the UK average. The pace of increase was the sharpest since April, with firms noting that greater costs were passed on to customers via a hike in output charges.
