Latest Regional Growth Tracker survey data from NatWest signalled a sharper upturn in business activity at East Midlands firms as 2024 came to a close.
The headline NatWest East Midlands Business Activity Index picked up to 50.7 in December, from 50.1 in November. The latest data indicated a marginal expansion in output across the region’s private sector, but one that was the steepest for three months.
That said, the rise in activity belied a faster decline in new business in December. The quicker fall in new orders led firms to cut their staffing levels sharply as backlogs of work were depleted to the greatest extent in 15 months. Cuts to part-time work and the non-replacement of voluntary leavers in a bid to lower costs were key drivers of the fall in employment, according to panellists.
Despite subdued demand conditions, firms were able to hike their selling prices at a faster pace in December in response to sharper input cost inflation. Anecdotal evidence stated that companies sought to pass through higher costs to customers. At the same time, the degree of confidence in the outlook improved to the strongest since last September.
Lisa Phillips, Regional Managing Director, Midlands and East, Commercial Mid Markets, said: “The East Midlands private sector ended 2024 on a mixed footing as, despite a sharper rise in output, new business contracted to a greater extent. Cost cutting remained a key priority as customers and businesses alike reduced their spending. As such, employment declined at the fastest pace since August 2020 amid greater evidence of spare capacity.
“On a more positive note, although input prices increased at a quicker pace, firms were able to pass-through higher costs to customers via the fastest rise in output charges since March 2024. Confidence to hike selling prices reflected greater optimism in the outlook for output, with expectations the strongest since last September.”
Performance in relation to UK
The East Midlands was one of only three monitored regions and areas of the UK to register a rise in output during December, alongside London and the North East. Moreover, the pace of activity growth seen in the region was slightly faster than the UK average.
East Midlands firms recorded a third successive monthly decline in new orders in the final month of 2024. Moreover, the pace of contraction quickened to the fastest since last June and was moderate overall. The rate of decrease was sharper than the UK average, however.
Nevertheless, companies were more upbeat in their expectations regarding output levels in the coming year in December. The degree of confidence in a rise in activity over the next 12 months was the strongest in three months and broadly in line with the long-run series average. Firms in the East Midlands were the most optimistic of the 12 UK regions and areas monitored by the survey.
December data signalled a loss of jobs across the East Midlands private sector, as has been the case on a monthly basis since July 2023. The pace of decline in employment quickened substantially, and was the steepest since August 2020. Moreover, the rate of job shedding was sharper than the UK average, with only Wales, the South East and West Midlands registering greater decreases in staffing levels.
Meanwhile, spare capacity reportedly burgeoned as backlogs of work contracted at the quickest pace since September 2023. Reduced new order inflows enabled firms to process outstanding business, according to anecdotal evidence.
East Midlands businesses registered a faster rise in input prices during the final month of 2024, with cost burdens increasing at the sharpest pace since last July. The rate of cost inflation was slightly softer than the UK average, however.
Despite weak demand conditions, firms were able to raise their selling prices at a steeper pace in December. The rate of inflation was the quickest since last March and was slightly faster than the UK average.
