West Midlands output down for fifth time in six months

Business activity in the West Midlands dipped back into contraction in November as new orders continued to fall and firms lowered their staffing levels.

However, according to latest PMI data from NatWest, business sentiment improved for the third month running. On the price front, the rate of input cost inflation eased to a 41-month low, but firms raised their selling prices at a faster pace.

The headline West Midlands Business Activity Index – a seasonally adjusted index that measures changes in the combined output of the region’s manufacturing and service sectors – dropped back below the 50.0 no-change mark in November, signalling a reduction in business activity in the region’s private sector. At 49.4, down from 50.6 in October, the reading signalled a slight fall in activity that was the fifth in the past six months.

The reduction in output in the West Midlands was broadly in line with the UK average, with sector data pointing to manufacturing weakness. Anecdotal evidence indicated that the overall fall in activity was largely reflective of lower new orders.

New orders decreased for the third month running in November. Although modest, the pace of reduction accelerated to the fastest since June. Weaker market demand and delays linked to Brexit uncertainty were the main factors behind the fall in output, according to respondents.

Companies recorded a marked and accelerated fall in backlogs of work, which panellists generally linked to lower new orders.

As a result, the non-replacement of leavers was used to reduce workforce numbers. Employment has now decreased in each of the past four months, but the latest fall was only marginal. The decline in staffing levels in the region was in line with the UK average.

Input costs increased at the slowest pace in almost three-and-a-half years during November amid some reports of softer raw material price pressures. The rise in costs was the second-slowest of the 12 UK regions monitored, after the North East.

Despite a slower rise in input prices, West Midlands firms increased their output charges at a faster pace. The rate of inflation was solid and the sharpest since May. Where charges were raised, panellists mentioned efforts to improve profit margins.

Business confidence improved for the third successive month in November. Hopes of a resolution to Brexit and greater new order volumes supported optimism among firms that output will be higher in 12 months’ time.

John Maude, NatWest Midlands & East regional board, said: “The soft-patch for demand in the West Midlands economy continued in November, leading output to fall back into contraction following a slight rise in October. Businesses will be hoping that some clarity is available once the December election is out of the way. Evidence suggests that firms stand ready to expand once the Brexit position becomes clearer, with confidence up to a four-month high on the proviso that demand will be unblocked in 2020.”