Manufacturing and service sectors see output decline amid weaker client demand

John Maude (Photo: Tom Parkes)

Private companies operating in the region’s manufacturing and service sectors have seen their output decline at the fastest rate since January 2021, according to new research by NatWest.

The NatWest East Midlands Business Activity Index – a seasonally adjusted index which measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – fell from 48.7 in July to 45.0 in August.

Anecdotal evidence suggests that the decrease in activity was due to weak client demand and the reduced purchasing power of customers.

Private sector companies in the East Midlands also recorded a steep contraction in new orders during August, NatWest says.

Manufacturers registered the sharper decline of the two monitored sectors.

Data for August signalled an historically muted degree of confidence in the outlook for output over the coming year across the East Midlands private sector. Although upbeat overall, the level of optimism was the second lowest since May 2020, as concerns regarding pressure on customer spending and higher prices weighed on sentiment.

Output expectations across the region were weaker than the UK average, the Index reveals.

Private sector firms in the East Midlands continued to register an increase in employment midway through the third quarter as many were able to fill long-held vacancies. However, the rate of job creation eased to the slowest in almost a year as firms struggled with staff retention and were forced to cut costs.

John Maude, regional managing director at NatWest, said: “East Midlands firms signalled more challenging business conditions during August, as pressure on customer disposable incomes dampened spending and led to faster contractions in output and new business. Client demand slumped, as new orders fell at the sharpest pace since the initial COVID-19 lockdown in May 2020.

“Lower new orders led firms to favour cost-cutting efforts, as employment rose at the slowest pace for almost a year. Although picking up from July, the degree of confidence in the outlook was the second lowest for over two years as inflationary concerns weighed on sentiment.

“August saw slower increases in business expenses and charges for goods and services. Nevertheless, inflationary pressure remained historically elevated amid soaring material and energy bills.”

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