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 47.1 in November, down slightly from 47.5 in October.
The latest data signalled a solid drop in output, thereby extending the current sequence of contraction that began in August. Companies in the East Midlands noted that the decline was due to weak client demand, with some reports of order cancellations and postponements. Of the 12 monitored UK regions, only the North East recorded a steeper drop in activity.
East Midlands firms registered a fifth successive monthly decrease in new business during November. The rate of contraction eased slightly but remained strong overall. Anecdotal evidence suggested the drop in new orders was due to weak client confidence and lower customer purchasing power. The East Midlands indicated the sharpest fall in new orders of the 12 monitored UK regions.
Business confidence in the East Midlands slipped to the lowest since December 2022 in November. The level of positive sentiment was weaker than the UK average and was historically subdued with regards to the region’s long-run series trend. Although optimism was driven by hopes of a pick up in client demand and investment in new products, high interest rates and subdued demand conditions reportedly weighed on confidence.
November data indicated a further contraction in staffing numbers at East Midlands firms. The rate of job shedding quickened slightly and was the second-fastest since January 2021. Moreover, of the 12 monitored UK areas, only Wales and the North East signalled stronger contractions in employment.
The decrease in workforce numbers was linked to lower new order inflows and cost cutting initiatives.
Private sector firms in the East Midlands recorded a solid drop in incomplete business midway through the fourth quarter. Companies noted that lower levels of unfinished business were linked to a further reduction in new orders and sufficient capacity to process incoming work.
Backlogs of work fell for the fourteenth successive month, but at the weakest rate since July.
East Midlands firms recorded a pick up in the rate of cost inflation during November, as the pace of increase quickened from October’s recent low. That said, cost burdens rose at the second-slowest pace in almost three years amid lower prices for some raw materials. Nonetheless, the rate of inflation was broadly in line with the UK average.
The increase was led by the service sector, as manufacturing costs were broadly unchanged.
Companies in the East Midlands increased their output charges at a sharp pace during November. The rate of inflation eased slightly to the slowest in three months and was marginally weaker than that seen across the UK as a whole, but remained above the region’s series average. Firms attributed higher selling prices to efforts to pass-through greater costs to customers.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “East Midlands firms saw further drops in output and new orders during November, as the region heads for a challenging end to 2023. The contraction in new business was the strongest of the 12 monitored UK regions, as companies struggled to spur demand, with total activity also suffering.
“Underlying data highlighted further anticipated difficulties over the coming months, as firms cut workforce numbers again and business confidence slumped to the lowest in 2023 to date. Lower employment stemmed from cost cutting efforts, as input prices increased again.
“Although much slower than the average over the last two years, the rate of cost inflation quickened. Meanwhile, a trade-off between protecting margins and passing costs on to clients led to only a fractional moderation in charge inflation. Further historically elevated hikes in selling prices suggest pressure on customer purchasing power will remain a key theme in the coming months.”
