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 50.8 in May, down slightly from 51.5 in April, to signal only a marginal expansion in output at East Midlands private sector firms.
Greater business activity reportedly stemmed from a sustained uptick in new orders. The rise in activity was the fourth in successive months, but was the weakest in this sequence of growth. Moreover, the rate of increase was slower than the UK trend, with only Yorkshire & Humber and Scotland recording softer upturns, while Wales posted a decline.
Private sector firms in the East Midlands registered a fourth successive monthly expansion in new business during May. The pace of growth accelerated to the second-fastest since March 2022, despite being only marginal overall. Anecdotal evidence suggested that greater new orders were due to stronger demand conditions and increased customer referrals.
The rate of expansion was slower than the UK trend, however, despite the pace of growth at the UK level easing.
Output expectations across the East Midlands private sector remained upbeat in May, as the level of business optimism posted slightly above the long-run series average. Hopes of a pick up in client demand, and planned investment in new products and machinery reportedly drove positive sentiment. Although the degree of confidence slipped to a three-month low, it was broadly in line with the UK average.
May data signalled a marginal uptick in workforce numbers at East Midlands firms. Alongside reports of greater ease in hiring following increased availability of candidates, companies stated that employment rose amid new business growth. That said, the pace of job creation slowed from that seen in April, reflecting the wider UK trend which also indicated only a marginal rise in staffing numbers.
Private sector firms in the East Midlands signalled an eighth successive monthly decrease in the level of outstanding business in May. Survey respondents noted that lower backlogs of work were due to sufficient capacity and muted growth of new orders. The rate of contraction slowed to the weakest since November 2022.
The pace of decline was quicker than the UK average, despite softening.
Cost burdens faced by East Midlands private sector firms continued to increase during May. The rate of inflation picked up fractionally but was the second-slowest since February 2021. Nonetheless, the pace of uptick was sharper than the series average and broadly in line with the trend seen across the UK as a whole.
Hikes in input costs were often linked to greater wage bills and higher prices for some raw materials including timber and concrete.
May data signalled a softer but still marked uptick in output charges at East Midlands companies. Anecdotal evidence commonly highlighted the pass-through of increased costs to clients as driving the rise in selling prices. Although steeper than the long-run series average, the rate of increase in output prices was slightly weaker than the UK trend.
Some firms noted that efforts to drive new sales sparked a slower rise in charges.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “Firms in the East Midlands continued to register expansions in output and new business in May, however, rates of growth remained muted and only marginal overall amid challenges posed by the cost-of-living crisis and ongoing inflationary concerns.
“Nonetheless, some resolution to issues faced earlier in the year with regards to firms’ ability to hire meant that employment grew again, as capacity shortages in certain areas were plugged.
“Inflation remained a key concern for firms and their expectations regarding future output levels and demand conditions. Cost pressures were sticky in May, as the latest data signalled a reversal of the recent downward trend in input price inflation. Efforts to drive sales in the face of strain on margins, however, led to a softer uptick in charges.”
