West Midlands economic growth rosy but employment still brittle claim surveys

TWO important surveys have cast a rosy picture of the West Midlands’ economy; one suggesting that new business is rising at its fastest pace since 1997.

The latest Lloyds Bank Commercial Banking West Midlands PMI report shows the region’s private sector economy gathered momentum in August. New business rose at the strongest rate since the start of the survey in January 1997, supporting a faster expansion of activity.

Backlogs of work are said to have increased slightly and while input prices rose at a sharper rate, output charge inflation remained modest.

Employment was also encouraging, with growth reaching a 19-month high.

Dave Atkinson, area director SME Banking West Midlands, Lloyds Bank Commercial Banking, said: “West Midlands companies reported buoyant new business growth in August, backed by a return of economic confidence looking ahead. The strong upturn in activity and incoming workloads encouraged firms to add new staff at the sharpest rate in 19 months, with employment growth the fastest of all the UK regions, as businesses geared up to capitalise on the strong revival of demand.”

Elsewhere, accountants and business advisers BDO in Birmingham said its latest Business Trends report showed short-term business prospects had continued to rise sharply in August, reaching their highest level since March 2011.

BDO’s Output Index, which predicts short-run turnover expectations and reflects the current experience of businesses, climbed to a 29-month high of 98.3, up from 96.8 in July. The figure is close to the 100.0 mark that indicates long run average trend growth, and suggests the economy is poised to experience robust growth in the next quarter.

Output in the services sector, which makes up roughly three quarters of the UK economy, rose from 96.5 in July to 97.7 in August, while the manufacturing sector rose above 100.0 to 100.7 in August from 98.3 in July.

Business confidence also continued to rise. BDO’s Optimism Index, which predicts business performance in two quarters time, increased for the seventh consecutive month – from 95.6 in July to 98.0 in August – its highest level since May 2011 and closer to the important 100.0 mark.

The services sector recorded a healthy Optimism score of 97.7, while manufacturing confidence, buoyed by improving conditions in the Eurozone, leapt up from 91.4 in July to 99.6 in August.

However, the BDO report is less encouraging on employment. It said improving business conditions and confidence were not being matched by a corresponding pick up in companies’ hiring intentions.

BDO’s Employment Index remained at the same 97.0 level as in July and the Index has only moved up by 0.6 points in the last five months. The relative stasis is consistent with official figures which show that between April and June 2013, the unemployment rate was 7.8%, barely down on the same period one year earlier.  

Mark Anslow, left, partner and head of BDO in Birmingham, said: “We’re encouraged to see that business conditions and confidence are continuing to improve, and that the economy is set for relatively robust expansion for the remainder of 2013.

“However, the sting in the tail is that the improvement is not being reflected in businesses’ hiring intentions. This is particularly pertinent given the Bank of England Governor Mark Carney’s decision to peg interest rates to unemployment levels. Our data suggests that Carney’s target may remain elusive and interest rates will remain at their record low for some time.  

“We’re likely to see more public sector job cuts in the next 12 months and as Carney recently pointed out productivity in 2013 remains stuck at the same level it was in 2005.  This means that that the pick-up in business output may at least be partially absorbed by higher levels of output per worker.”

According to the PMI report, business activity at private sector companies in the West Midlands rose for a fourth successive month in August. Furthermore, the rate of growth quickened to the sharpest since March 2012.

The Lloyds Bank Commercial Banking West Midlands Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – reached 59.2, up from 58.8 in July. Output growth remained faster in the service sector than in manufacturing.   

Underpinning the rise in activity was a further increase in the level of new business received by West Midlands private sector companies. New work was up for the 10th consecutive month, with the rate of expansion accelerating to a survey-record high. Anecdotal evidence highlighted improved demand conditions and stronger confidence among clients as key factors supporting new business growth.

It added that private sector firms stepped up their hiring in August. The pace of jobs growth was solid and the fastest since January 2012. Service providers added to staffing levels at a faster rate than manufacturers.