Region sees slight expansions in activity and new orders
Private sector output in the West Midlands continued to expand in February, extending the run of growth that began at the start of 2020.
However, rates of increase in both activity and new business moderated. Firms meanwhile faced rising cost inflationary pressures, leading to a solid uptick in output prices. Expectations weakened slightly, but remained historically upbeat.
The West Midlands Business Activity Index – a seasonally adjusted index that measures changes in the combined output of the region’s manufacturing and service sectors – fell slightly from 51.6 in January to 51.2 in February, to signal a moderate upturn in business activity. This marked the second successive month of expansion.
Higher output was mainly linked by panellists to a rise in new business and the beginning of new contracts. However, reduced travel and component shortages were highlighted as limitations on overall growth.
West Midlands firms saw a third consecutive rise in new work in February. That said, the rate of increase softened from January and was only modest overall. The upturn was mainly driven by the services sector, with manufacturing demand falling further.
Employment meanwhile dropped for the first time since last November, as hiring activity was offset by resignations at some firms. The overall decline in job numbers was only fractional, and contrasted with a pick-up in employment at the national level.
At the same time, companies registered a sharp drop in work-in-hand, with the decrease quickening slightly to the fastest in six months. Goods producers drove the reduction in backlogs, while service providers saw a slight rise in outstanding work.
Input costs rose at the sharpest pace for five months during February, as manufacturers noted higher raw material prices. This was often due to shortages of some inputs as firms looked to re-route supply chains away from China following the coronavirus outbreak.
Meanwhile, there was a solid rise in output prices at West Midlands firms, with the rate of inflation at the highest since last April. The mark-up was still weaker than the UK average, however.
Expectations for future output weakened for the first time in six months in February, but remained strongly positive overall, after reaching a 33-month high at the start of 2020. Firms often noted hopes of new business growth and continued confidence in the UK economy following the election and Brexit resolution.
John Maude, NatWest Midlands & East regional board, said: “Growth momentum in the West Midlands eased slightly in February, latest PMI data showed, with expansions in activity and new orders weakening since the start of the year. Nevertheless, these numbers remain good news for the region compared to its performance in 2019, as surging post-election confidence and the release of pent-up demand look to also drive UK GDP growth in the first quarter.
“The manufacturing sector struggled to regain client demand, however, with customer orders slow to pick up, while the emergence of the coronavirus outbreak places renewed uncertainty on production levels as global supply chains struggle to adjust to factory shutdowns in China.”
