Latest Regional Growth Tracker survey data from NatWest pointed to a deepening downturn in the East Midlands private sector.
The headline NatWest East Midlands Business Activity Index dropped to 44.7 in February from 49.8 in January, signalling a second successive monthly reduction in output and one that was much sharper than at the start of the year. In fact, the pace of contraction was the steepest since January 2021.
Where output fell, survey respondents generally linked this to lower new orders and a lack of market confidence. New orders also decreased at a faster pace. Moreover, the latest reduction in new business was the fastest since October 2023. Where new orders decreased, panellists linked this to deteriorating market conditions and hesitancy among customers.
The rate of input cost inflation remained elevated, leading firms to raise charges sharply. Efforts to limit expenses contributed to a marked reduction in employment.
Staffing levels fell sharply in the East Midlands during February, with the pace of job shedding accelerating to the fastest since May 2020. In fact, excluding the pandemic period, the reduction was the steepest since July 2009.
Companies often linked lower staffing levels to efforts to limit labour costs ahead of the upcoming rises in employer National Insurance Contributions and the National Minimum Wage.
Lisa Phillips, Regional Managing Director, Midlands and East, Commercial Mid Markets, said: “It is tricky to find positives in the February Growth Tracker for the East Midlands as companies in the region suffered amid a lack of market confidence and hesitancy among customers.
“The muted demand picture was accompanied by worries about costs. Although firms were able to limit the rise in input prices to some extent, this was in part done on the back of job cutting. In fact, if you exclude the pandemic period, the reduction in employment was the largest since the Global Financial Crisis. Meanwhile, selling price inflation hit a 20-month high.
“One area of relative positivity came when firms were asked about the year-ahead outlook. Here, East Midlands companies were among the most optimistic in the country, second only to their neighbours in the West Midlands.”
Performance in relation to UK
The reduction in activity in the East Midlands was the fastest of the 12 monitored areas of the UK.
Despite weakness in output and new orders during February, companies remained confident that output will increase over the coming year.
Confidence ticked down only slightly from January and was the second-highest of the 12 monitored UK regions and nations, behind only the West Midlands.
More than 48% of respondents predicted a rise in output over the coming year, with optimism centred on hopes of an improvement in market demand. New product development is also set to help support growth of business activity.
With new orders declining, companies used spare resources to work on outstanding business. As a result, backlogs of work decreased for the twenty-ninth consecutive month. Moreover, the pace of depletion was substantial and the most pronounced since May 2020.
Only the North West posted a faster reduction in outstanding business than the East Midlands.
Although input costs continued to rise sharply in the East Midlands during February, the pace of inflation eased slightly from the nine-month high seen in January and was just below the average for the UK as a whole.
Where input prices did rise, this was often linked by panellists to higher labour costs, but also raw material prices. Cost pressures were much more pronounced at service providers than at manufacturers.
Efforts to cover increasing input costs meant that output prices rose again during February. Moreover, the pace of inflation quickened for the third consecutive month and was the steepest since June 2023.
