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 54.2 in February, up notably from 51.6 in January, to signal a solid expansion in output at firms in the East Midlands.
The rate of growth was the sharpest since April 2022, with companies highlighting that stronger client demand and increased investment helped spur the accelerated rise in activity. Moreover, of the 12 monitored UK regions, only London saw a steeper upturn in output.
East Midlands private sector firms recorded a second successive monthly increase in new orders during February. The rate of growth quickened to a solid pace that was the fastest in almost two years. The expansion was sharper than both the long-run series and UK averages. Anecdotal evidence suggested that the upturn was linked to stronger client demand and the acquisition of new customers.
February data signalled more upbeat expectations regarding the outlook for output at East Midlands companies. The degree of confidence picked up notably to the highest since January 2022. Stronger business confidence was attributed to investment in new product and service lines, increased marketing and hopes of further upticks in new business.
Staffing numbers at East Midlands firms continued to decline during February, with job shedding gaining pace. Although only marginal, the rate of contraction in employment was the fastest for three months and contrasted with the UK average which pointed to a fractional rise in workforce numbers.
Lower employment was in part due to the non-replacement of voluntary leavers due to cost considerations.
Private sector firms in the East Midlands recorded a further drop in the level of incomplete business midway through the first quarter. The pace of decline quickened from January and was moderate overall. Businesses noted sufficient capacity to process incoming new work.
The fall in backlogs of work was driven by manufacturers who registered a sharp decrease in work-in-hand.
Input prices faced by East Midlands firms increased at a marked pace during February, with the rate of inflation ticking higher. The uptick in cost burdens was the joint-fastest since September 2023 and broadly in line with the UK average.
Higher input prices were linked to additional shipping and transportation costs, alongside increased supplier charges.
East Midlands businesses registered a faster uptick in output charges during February. The rise in selling prices was steep overall and accelerated notably from January to post above the series average. Anecdotal evidence commonly stated that higher output prices were due to the pass-through of greater costs to customers.
The pace of charge inflation was slightly softer than the UK average, however.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “East Midlands firms saw a further improvement in the health of the private sector during February, as rates of output and new order growth accelerated. Moreover, the region was one of the strongest performers across the UK.
“More robust client demand spurred the sharpest rise in new business for almost two years. Firms remained conscious of cost pressures, however, as this, alongside sufficient capacity to process incoming orders, led to a further fall in employment. Jobs were shed at the sharpest pace since last November.
“Lower employment was not indicative of weaker business confidence in the year-ahead outlook, as optimism strengthened to the highest since early-2022. Greater sentiment was expressed despite renewed upwards momentum in rates of inflation. Transportation and shipping costs continued to be a key driver of increases in expenses, which were in turn passed through to clients where possible.”
