West Midlands business activity remains strong as corporate insolvencies decline

BUSINESS activity in the West Midlands’ private sector economy remained strong during January, according to a new study.

Although easing from the survey-record high recorded in December, the latest Lloyds Bank Commercial Banking West Midlands PMI report concluded the rate of expansion remained comfortably above the UK average.

New business similarly rose at a marked pace, albeit slower than the previous month’s peak. Backlogs of work increased at a faster rate, encouraging firms to hire additional staff. Input price inflation quickened slightly, but output charges rose at the slowest pace in four months.

The Business Activity Index – which measures the combined output of the region’s manufacturing and service sectors – posted 60.9 in January. This was down from 61.7 in the previous month, but still well above the survey’s long-run average (53.0). Data indicated strong rates of expansion across both the manufacturing and service sectors.

Supporting higher activity was a further rise in new business placed with private sector firms. The rate of growth in new work remained substantial, despite easing to a three-month low. The launch of new product ranges, stronger demand from export markets and increased marketing activity were cited as the main reasons for higher levels of new business.

The rate of job creation remained solid in January, albeit slower than the UK average.

Rising backlogs of work was considered a major factor in firms hiring more staff. The latest increase in outstanding business was the sixth in consecutive months and, although moderate, the sharpest since last September.

There was a slightly sharper rise in input costs during the month, however, the rate of inflation remained slower than the long-run series average. Output price inflation eased in January, reaching its slowest pace in four months.

Commenting, Andy Youngman, area director SME Banking in Birmingham, Lloyds Bank Commercial Banking, said: “The West Midlands continued its buoyant growth momentum at the start of 2014, albeit easing slightly from the record seen in December.

“With the manufacturing and service sectors both delivering strong performances, backed by robust inflows of new business, the region looks well set to continue to expand strongly in coming months. Companies were sufficiently optimistic to add further to staffing levels in the latest survey period, extending the current upturn in employment to 13 months.”

Elsewhere, analysis of the latest national corporate insolvency statistics by PwC provided further evidence of a recovering economy.

It found the number of company failures had decreased again as lenders provided more sustained support for businesses.

The figures show 4,398 companies entered insolvency in the last quarter of 2013. This is a decrease of 6.8% on Q3 when 4,720 businesses failed. Year on year the number of collapses has dropped by 6.4% when 4,701 businesses began insolvency proceedings in Q4 2012.

Comparing the whole of 2013 with 2012, company collapses dropped by 9.2% t0 18,841 (2012: 20,749).

Rob Hunt, partner and head of PwC’s Business Recovery Services team in the Midlands, said: “Insolvencies have shown a fall of 6.8% in the last quarter of 2013 and this is as expected as the economy continues to pick up. However, there are some interesting factors to take into account.

“The quarter’s low level of insolvency has been driven by the availability of investment funds to help bring companies back from the brink of collapse. Hedge funds and distressed venture capital funds are the busiest part of the restructuring community.

“The insolvency levels in the UK compare very favourably to other Eurozone economies, notably Spain and Italy, where the insolvency trend is still rising.”

He said he expected the decrease in UK insolvencies to continue during 2014.