Business activity rebounds as output increases for first time in seven months

The NatWest PMI results for the West Midlands signalled a substantial improvement in the health of the local economy.

Besides retreating price pressures and a recovery in business sentiment, the data showed that a renewed increase in new orders pushed output inside growth territory. The 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 – rose from 49.0 in January to 53.0, above the 50.0 threshold for the first time in seven months and at its highest mark since April 2022.

The solid upturn was reportedly supported by better underlying demand and expanded clientele. The local rise was the third-best of all 12 monitored UK regions.

Private sector companies in the West Midlands registered a renewed increase in new work intakes in February, ending an eight-month sequence of reduction. The pace of expansion was solid and the strongest since March 2022. Survey participants indicated that demand had strengthened, with some clients reportedly seeking to rebuild their inventories. There were also mentions of successful advertising and new customer acquisitions. The local trend for sales was the third-best regionally.

February data pointed to another overall increase in the expenses of private sector companies. The rate of inflation remained elevated, but eased for the third consecutive month to the weakest in two years. Panellists indicated that exchange rate movements, energy price volatility and higher wage bills were the key sources of pressures. These were restricted by competition for new work among suppliers, lower shipping costs and improved availability of some raw materials.

Ongoing cost rises again led West Midlands companies to lift their charges in February, stretching the current sequence of inflation to 33 months. The rate of increase remained substantial by historical standards, despite easing to its lowest since August 2021. A slower increase in output prices was also seen at the UK level, with inflation below that registered in the West Midlands.

Companies operating in the West Midlands private sector indicated higher payroll numbers midway through the first quarter. Hiring growth was commonly attributed to rising workloads, acquisitions and the replacement of voluntary leavers. Employment expanded a solid rate that was the quickest in four months. Out of the 12 monitored UK regions, the West Midlands came third in the rankings for jobs, while two areas posted falls.

For the third month in a row, unfinished business volumes at West Midlands companies decreased in February. That said, having slowed to the weakest over this period, the rate of depletion was only slight. Where a fall was reported, survey participants mentioned improved capacity, efficiency gains and outsourced support.

West Midlands companies forecast higher levels of business activity in 12 months’ time. The overall degree of optimism improved to its best since the start of 2022. Among the reasons cited for upbeat projections were new market opportunities, receding pressure on energy markets, new product releases and more favourable demand conditions. Local companies were the most confident regionally.

Rashel Chowdhury, NatWest Midlands and East regional board, said: “The latest results surprised on the upside as more positive than expected data published in recent months underpinned a better outlook for the UK economy, with households and firms becoming more willing to spend. West Midlands companies lifted output in February, moving away from a short-lived downturn, as their clients displayed a stronger appetite for goods and services. Alongside an improvement in demand conditions, panellists stated that marketing efforts bore fruit and that customers were more inclined to add to their inventories. Business confidence strengthened to its highest level in close to a year, supporting solid growth of local jobs.”