Subdued demand conditions curb inflationary pressures - NatWest

Following a return to growth in June, business activity in the West Midlands was broadly stagnant at the start of the third quarter.

That 's according to NatWest 's 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.

The index fell from 51.1 to 50.3, moving closer to the 50.0 no-change mark and signalling a broad stagnation in local output.

Survey participants indicated that growth was constrained by adverse demand conditions, subdued market confidence, input shortages and inflationary pressures.

West Midlands companies signalled a second consecutive fall in new work intakes during July.

The downturn was associated with reduced trading activity, rising interest rates, acute price pressures, subdued demand conditions and client uncertainty.

But the overall rate of contraction was only marginal and broadly similar to June.

Although reaming sharp, the overall rate of input cost inflation in the West Midlands softened considerably to a 14-month low in July.

Anecdotal evidence pointed to higher commodity, energy, food, logistic, material and staff costs � often a result of sterling weakness, labour shortages and the war in Ukraine.

Price pressures were reportedly curbed by a reduction in input supply and demand imbalances.

When it comes to input cost inflation, the West Midlands was at the bottom of the regional rankings.

The combination of a slower upturn in average input costs and faltering demand led to a weaker increase in average prices charged for goods and services in the West Midlands.

The rate of output price inflation eased to a seven-month low, but remained historically high as several firms sought to transfer greater cost burdens through to clients. The local rate of selling price inflation matched the UK average.

PMI data for July continued to point to capacity pressures at companies in the West Midlands, as outstanding business volumes rose further.

The expansion was the seventeenth in successive months, with the rate of accumulation picking up to the strongest since last November. Longer delivery times, input shortages and absenteeism were among the reasons cited for growing backlogs.

Despite a fall in new work intakes, private sector companies in the West Midlands continued to add to their payrolls amid the fill-up of roles lost due to the pandemic and efforts to clear backlogs. The latest increase took the current sequence of job creation to 17 months, with the rate of expansion broadly similar to June's marked pace.

July data indicated that West Midlands companies remained confident of a rise in output over the coming 12 months.

Optimism was supported by predictions of demand improvements, new product launches and investment in people and systems.

That said, easing from June, the degree of positivity was at its second-weakest since October 2020. Recession fears, political uncertainty, inflationary pressures and the war in Ukraine reportedly curbed sentiment.

John Maude, NatWest Midlands and East regional board, said: “Economic conditions in the West Midlands remained challenging in July as consumers trimmed expenses due to rising interest rates, acute price pressures and an uncertain outlook.

“Recession fears and political uncertainty dampened business sentiment, which was at its second-lowest level since October 2020.

“The combination of lower new business and subdued confidence resulted in near-stagnant output, but firms continued to fill-up local positions that were made vacant due to the pandemic.

“With demand cooling, inflationary pressures receded at the start of the third quarter.

“Although still sharp, the latest upturn in input costs was the slowest in 14 months and output charges increased at the weakest rate in the year-to-date."