Quicker decline in new business drags down region 's output - report

A quicker deterioration in demand conditions resulted in a renewed fall in business activity across the West Midlands over the past month, according to the latest NatWest PMI.

The headline 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 - slipped from 50.3 in July to 49.3 in August.

It was the first drop in three months but one that was marginal overall.

Panellists attributed the contraction to reduced client purchasing, consumers trimming expenditure, economic uncertainty and product availability issues.

For the third month running, new business placed with private sector companies in the West Midlands declined in August.

Private sector companies in the West Midlands signalled another sharp upsurge in their operating expenses halfway through the third quarter.

Greater energy, food, fuel and staff costs were among the key sources of inflation cited by panellists.

Nevertheless, the overall rate of increase softened to a 17-month low amid softer pressures from freight and some material (particularly metals) prices.

The West Midlands recorded the lowest rate of inflation out of the 12 monitored UK regions.

In contrast to the slowdown in cost inflation, there was a faster upturn in prices charged for goods and services in the West Midlands during August.

The rate of increase quickened only fractionally from July's seven-month low and was above its long-run average, but was nevertheless the second-lowest in 2022 so far.

West Midlands firms remained upbeat regarding the year-ahead outlook for business activity, but confidence fell to its second-lowest level since October 2020 (surpassing May 2022).

August data continued to show job creation in the West Midlands private sector economy, though the rate of increase softened to the second-slowest in the current 18-month sequence of expansion.

Where staff numbers rose, panellists commented on the replacement of voluntary leavers, efforts to fill outstanding vacancies and predictions of a pick-up in demand.

Others suggested that skill shortages, a lack of new work and resignations led to lower headcounts.

Outstanding business volumes at private sector firms in the West Midlands decreased in August, ending a 17-month sequence of accumulation.

John Maude (pictured), NatWest Midlands and East regional board, said: “The latest results clearly show the harmful consequences of inflation and uncertainty on the West Midlands economy.

“Firms responded to subdued conditions by scaling back business activity and reassessing growth projections downwards as recession fears deepened.

“Although it was welcoming to see a further retreat of cost inflationary pressures, the results showed a broadly unchanged rate of increase in prices charged for local goods and services.

“As companies face higher expenses themselves and seek to pass this on to clients at a time when consumers are cutting back on non-essential spending, a meaningful recovery in the West Midlands economy is looking more distant. ”