The NatWest East Midlands Growth Tracker – 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 48.3, down from 50.8 in June, to signal a modest downturn in output at East Midlands firms, thereby ending a seven-month sequence of expansion. The latest fall was linked to subdued client demand and another drop in new orders.
Moreover, firms in the region registered the joint-fastest decrease in activity of the 12 monitored UK areas, alongside Wales.
East Midlands firms signalled a second successive monthly decrease in new business in July, albeit at a slower rate. The fall in new orders was only marginal, with firms linking the contraction to weak client demand and increased competition. Manufacturers and service providers alike saw a drop in new sales, with the latter recording the sharper decline. When compared to the UK as a whole, the East Midlands was the only region monitored to record a drop in new orders.
Nonetheless, firms were more upbeat in their expectations regarding the outlook for output over the coming year. The degree of optimism picked up to the highest since February and was above the series average. Companies hoped that investment in advertising and new product launches would help boost client demand and overall activity.
Dipesh Mistry, Chair of the NatWest Midlands and East of England Regional Board, said: “The second half of the year started on a slightly damper note for East Midlands firms as output returned to contraction amid weak client demand. Evidence of spare capacity led firms to reduce staffing numbers. Although rates of decline in both employment and new business softened, the East Midlands was the only monitored UK area to see a fall in new orders.
“Meanwhile, cost pressures picked up for firms. Whilst still seeking to pass higher operating expenses through to customers, selling prices rose at a softer pace. Strain on margins was potentially more keenly felt in the East Midlands as costs rose at a sharper rate than the UK average, but output charges were hiked to a lesser extent. Nevertheless, business optimism was the strongest since February.”
Performance in relation to UK
In contrast to the UK average which indicated a solid rise in output, East Midlands firms, alongside those in Wales, recorded a fall in business activity.
Similarly, the UK as a whole registered a strong increase in new business which contrasted notably with a marginal decline seen in the East Midlands.
July data signalled a further and faster increase in input prices at East Midlands private sector firms. The rate of cost inflation picked up to the steepest since April, and was quicker than both the region’s long-run series and the UK averages. The hike in operating expenses was often linked to higher labour, raw material, energy and shipping costs.
Nonetheless, companies raised their selling prices at a softer pace during July. Although still solid, the rate of charge inflation was slower than that seen across the UK as a whole. That said, firms continued to note the pass-through of greater costs to clients.
Workforce numbers at East Midlands companies declined further in July, thereby extending the current sequence of contraction that began just over a year ago. In fact, the region was one of only two to see a drop in staffing levels (alongside the neighbouring West Midlands), with the fall contrasting with the UK trend which signalled a modest rise. Restructuring and the non-replacement of voluntary leavers reportedly drove the decrease.
Meanwhile, backlogs of work fell at a solid pace that was sharper than the UK average. The rate of depletion eased from June but was also quicker than the long-run series trend.
