West Midlands output slows to six-month low but still better than most

OUTPUT in the West Midlands slowed to a six-month low in May but the region is still one of the best performing areas in the UK.

The latest Lloyds TSB West Midlands PMI® report showed business activity was slowing across the private sector. The headline Business Activity Index posted 53.9, down from 56.3 in April, its lowest reading in six months but still in positive territory.

The index concluded that although weaker, output growth was still the second-fastest across all UK regions in May. Expansion was primarily driven by the service sector, as manufacturers indicated only a moderate increase in output.

The slower increase in activity mirrored a similar deceleration in growth of new business during May. The latest increase in new work was the least marked since last November. Anecdotal evidence suggested that fragile client confidence and efforts to restrict the build-up of stocks had constrained new business growth. Nevertheless, the rise in incoming new work was the sharpest of all UK regions in May.

In contrast to the weaker trends in activity and new business growth, employment in the region’s private sector accelerated during May. The current period of expansion in payroll numbers now extends to six months, with the latest increase solid and above the UK average.

Higher employment helped West Midlands companies make inroads into their outstanding business during May. Backlogs fell at a moderate rate overall, while declines in unfinished work were centred on the manufacturing sector, with service providers reporting growth of outstanding business.

Input cost inflation in the West Midlands private sector moderated to a three-month low during May, although it remained stronger than the UK average. Firms which signalled a rise in input prices said they were having to contend with increased transportation and raw material costs.

Output prices increased only modestly and at the weakest rate for five months in the latest survey period. Anecdotal evidence suggested that firms’ pricing power had been restricted by competitive pressures. However, rising charges in the West Midland contrasted with a slight reduction across the UK overall.

Commenting on the Lloyds TSB West Midlands PMI® survey, Andy Youngman, area director for Lloyds TSB Commercial in Birmingham, said:  “Output growth in the West Midlands slowed further in May from the strong rates of expansion seen in the first quarter of the year.

“The region nevertheless remained among the top performers across the UK, boosted by a resilient service sector. The trend in manufacturing was somewhat weaker however, reflecting a wider deterioration at the national level.

“Given the particular importance of manufacturing to the West Midlands economy, the worry remains that the region’s recovery could get blown off course amid fragile domestic conditions and weakening demand in key Eurozone export markets.”