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 50.7 in December, up notably from 47.1 in November, to signal a return to growth in output at firms across the region.
The rise in business activity was the quickest since May 2023, albeit slower than the UK average. Anecdotal evidence suggested that increased output was due to signs of improvement in demand conditions and efforts to clear backlogs.
December data signalled only a marginal contraction in new orders at East Midlands firms. The rate of decline softened for the second month running and was the slowest since July. Nonetheless, the decline in new business was linked to subdued demand conditions and economic uncertainty.
The decrease in new orders in the East Midlands contrasted with the wider UK trend which indicated the fastest rise in new business since May.
East Midlands companies recorded a slight pick up in the level of optimism regarding the year-ahead outlook for output in December. Expectations of greater activity stemmed from hopes of an improvement in customer demand, a more focused approach to marketing and investment in facilities. Although stronger than in November, the degree of confidence was below the long-run series average and the UK trend level.
Firms in the East Midlands registered a sixth successive monthly drop in employment during December. That said, the pace of job shedding eased to only a slight rate that was the slowest in the aforementioned sequence of decline. Companies reportedly cut workers in a bid to reduce costs, but some noted that staff growth was due to the hiring of temporary workers.
Companies in the East Midlands saw a slower fall in employment compared to the UK average.
The level of outstanding business at firms in the East Midlands fell further at the end of 2023, thereby extending the current sequence of decline which began in October 2022. Companies continued to state that lower new orders allowed them to work through existing business. The pace of contraction was solid but eased to the slowest since June.
The decrease in work-in-hand was led by manufacturers, as service providers registered a faster rise in incomplete business.
December data signalled a marked rise in input prices across the East Midlands private sector. Business expenses increased at the fastest pace in three months, and at a rate that was sharper than the series average. Hikes in input costs were attributed to greater wage bills, higher utility prices and increased component costs.
The pace of increase in input prices was the second-fastest of the 12 monitored UK regions, with only London recording a steeper uptick.
Selling prices at East Midlands businesses rose at a steep rate at the end of 2023. The increase in output charges was the quickest for six months and sharper than the series average. Firms reportedly sought to pass through costs to customers amid a faster uptick in input prices. The pace of inflation was broadly in line with the UK average.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “East Midlands firms ended 2023 on a slightly better note, as output returned to expansion and the decline in new orders softened for a second successive month to only a marginal pace. Firms noted signs of improvement in demand conditions, but continued to highlight that economic uncertainty weighed on customers’ minds.
“Glimmers of hope regarding future demand led to only a fractional drop in employment despite a marked contraction in outstanding work.
“Meanwhile, inflationary pressures gained momentum as input prices and output charges rose at the fastest rates for three and six months, respectively. Greater utility costs and hikes in wage bills placed strain on margins, with paces of increase historically elevated which may constrain customer spending further in the opening months of 2024.”
