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 45.4 in December, down from 47.1 in November, to signal a strong fall in output across the East Midlands private sector.
The decline in business activity was the second-fastest since January 2021 and quicker than the UK average. Of the 12 monitored UK regions, only Northern Ireland recorded a sharper decrease in output. Lower activity was linked to weak client demand and a further fall in new orders.
East Midlands private sector firms signalled a marked decrease in new orders during December, with the pace of contraction accelerating for the third month running. The rate of decline was the sharpest since May 2020 and faster than the UK average. In fact, the pace of decrease was the second-quickest of the 12 monitored UK regions, slower than only Northern Ireland. The downturn in client demand was linked to economic uncertainty and the impact of inflation on customer spending.
Business confidence across the East Midlands private sector dipped at the end of the year. The degree of optimism was below the series and UK averages. The region’s firms remained optimistic overall of an increase in output over the coming 12 months amid hopes of a pick up in client demand. That said, inflation and recession concerns weighed on output expectations.
Workforce numbers across the East Midlands private sector fell for the second month running in December. The rate of job shedding quickened to the fastest since January 2021, albeit was only marginal overall. The decrease in employment was slightly faster than the UK average, as firms attributed lower staffing numbers to the non-replacement of voluntary leavers in an effort to cut costs.
Private sector firms in the East Midlands registered a sharp decrease in the level of outstanding business during December. The fall in backlogs of work accelerated notably to the steepest since May 2020. The decline in incomplete business was linked to weak client demand which allowed firms to work through backlogs. The rate of contraction was the sharpest of the 12 monitored UK regions.
East Midlands private sector firms registered a marked rise in input prices during December. Higher cost burdens were often linked to increased supplier prices. That said, the pace of cost inflation eased to the slowest since April 2021 as the prices of some key inputs fell. The rate of increase was the second-fastest of the 12 monitored UK regions, however, slower than only Northern Ireland.
Private sector firms in the East Midlands signalled a further sharp increase in output charges at the end of the year. The rise in selling prices was attributed to the pass-through of higher costs to clients. In line with the trend for input prices, the pace of output charge inflation was stronger than the UK average. That said, the rate of inflation was the slowest since August 2021 as cost savings were also passed on to customers.
Rashel Chowdhury, NatWest Midlands and East Regional Board, said: “East Midlands private sector companies signalled a dour end to 2022, as activity and new orders shrank at sharper rates.
“Inflationary pressures and the impact on customer spending continued to be felt keenly, with new business contracting at the steepest pace since the initial pandemic lockdown period. As a result, backlogs of work dwindled and firms started to report that cost-cutting measures including the non-replacement of voluntary leavers drove job shedding.
“On a more positive note, cost and price pressures eased. Emerging reports of lower prices for some inputs were reflected in less severe hikes in output charges. Nonetheless, 2023 is likely to prove another challenging year for East Midlands businesses as the cost-of-living crisis and economic uncertainty threaten to dampen customer demand further.”
