Output growth quickens in the East Midlands, but demand softens in May

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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 at 52.3 in May, up from 51.2 in April, to signal a modest expansion in output at East Midlands private sector firms.

The upturn was linked to a further rise in new orders and a sustained improvement in demand conditions. The rate of growth in activity was the fastest for three months, albeit slightly slower than both the series and UK averages. Key Findings:

  • Activity growth at three-month high, but new order expansion slows
  • Inflationary pressures soften notably
  • Fall in employment steepest for eight months

East Midlands private sector firms signalled a fifth successive monthly expansion in new business during May. Anecdotal evidence suggested the rise in new orders was due to sustained customer demand. That said, the pace of growth slowed to only a fractional rate, as some firms highlighted a sluggish sales environment. The rate of increase in new orders was slower than both the long-run series trend and UK average. May data signalled further upbeat expectations among East Midlands private sector firms. Companies stated that efforts to diversify revenue streams, greater advertising to bring in new clients and hopes of stronger demand conditions supported optimism. Nonetheless, the degree of confidence remained subdued in the context of the series' history and was lower than the UK average. East Midlands private sector firms indicated an eleventh consecutive monthly decrease in employment during May. The rate of decline quickened to the fastest since last November, but was only marginal overall. Redundancies and the non-replacement of voluntary leavers following subdued new order growth reportedly drove job shedding. The fall in staffing numbers in the East Midlands contrasted with a slight rise seen at the UK level. May data indicated a faster decrease in backlogs of work at East Midlands firms. The pace of contraction quickened to the sharpest since September 2023 and was strong overall. Moreover, the pace of decline was the second-strongest of the UK regions, slower than only Wales. Companies noted that muted new order inflows allowed them to work through incomplete business successfully. Average cost burdens faced by East Midlands firms rose further during May, as higher wage bills and raw material prices pushed up operating expenses. That said, the pace of cost inflation slowed to the weakest since November 2020 and was softer than the long-run series average. The slower uptick in costs reflected the broader UK trend, however. East Midlands private sector firms signalled a solid rise in selling prices midway through the second quarter. The rise in output charges was often driven by efforts to pass through higher costs to customers. The rate of charge inflation eased for the third month running, however, and was the slowest since January 2021. With the exception of Yorkshire & Humber and the North West, the East Midlands saw the weakest rise in selling prices of the 12 monitored UK regions. Dipesh Mistry, Chair of the NatWest Midlands and East of England Regional Board: "East Midlands firms saw a more positive development with regards to output midway through the second quarter, as business activity ticked up at a faster pace. Demand was persistent, with new orders rising further, albeit at a slower rate. "Encouragingly for firms, cost pressures slackened somewhat from the highs seen throughout most of the last three-and-a-half years. Input prices rose at the slowest rate since November 2020. In a bid to remain competitive and boost sales, the pace of charge inflation also moderated. "Despite a faster fall in employment following reduced pressure on capacity, private sector firms remained optimistic in the outlook for output over the next year. In fact, business confidence strengthened from April as firms sought to diversify revenue streams and broaden their customer bases."

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