West Midlands business activity levels nose-dive at fastest rate for seven years
ACTIVITY levels in the West Midlands fell at their fastest rate in seven years post-EU Referendum, according to latest figures.
New work orders fell and job creation virtually ground to a halt, according to the Lloyds Bank Regional PMI for July.
The survey is the first economic indicator of business activity in the region since the June 23 vote.
The PMI for the region nose-dived to 47.4 last month, down from 51.9 in June. A reading of less than 50 signifies contraction, and the latest index reading was the first sub-50 result in the region in more than three years.
The PMI is collated by assessing responses from manufacturers and services businesses about the value of goods and services produced during a certain month compared with the month previous.
Firms in the region are also having to pay more for raw materials, as the value of the pound weakens. However, the situation has worsened because new business has slowed, with companies left to clear backlogs of work.
Mark Cadwallader, regional director for SME banking in the West Midlands, Lloyds Bank Commercial Banking, said: “The West Midlands was hit hard following the EU Referendum vote, and market uncertainty saw firms in the area delaying plans to sign new contracts and take on new workers.
“The Bank of England’s decision to cut interest rates will hopefully stimulate growth over the coming months, but during this period of uncertainty businesses will need to plan carefully to successfully navigate the challenges that they may face.”
The survey is not the only piece of research to underline the recent decline.
According to its latest Business Trends Report, BDO said business confidence continued to fall in the wake of the Bexit vote, the level plummeting to its lowest in three years.
Business output, reflecting companies’ experience of orders for the three months ahead, now sits slightly lower on the previous month at 98.2, down from 99.0. At the same time business optimism, which predicts growth six months ahead, has fallen from 98.9 to 97.9.
These lie approximately mid-way between the 95.0 mark on the indices – below which lies possible recessionary conditions – and 100.0 – which correlates to the UK’s trend growth rate of just over 2%. So, while there is a definite and continued decline in the confidence of UK business people, the latest drops are not yet as dramatic as may have been predicted. BDO said this suggested that the initial impact of the Brexit vote had been less severe than expected.
However, the picture is much gloomier for UK manufacturing as the sector’s optimism sub-index dropped to a four-year low, down to 81.0 – well below the 95 mark.
The falling value of sterling signals better exporting conditions and offers some hope for UK manufacturers, said BDO. However, rising inflation will also affect the sector by pushing up costs. BDO’s inflation index rose from 97.9 to 99.9 this month and this is set to rise further in the coming months following the drop in interest rates.
Commenting on the findings, Richard Rose, Midlands Lead Partner, BDO, said: “Brexit has compounded the continuing slowdown of the UK economy but there is opportunity as well as challenge ahead for UK businesses.
“The Bank of England’s decision to lower interest rates is a step in the right direction. We now need a concerted effort from government to lay the foundations for future growth. That means taking advantage of cheap borrowing costs to invest in UK infrastructure, encouraging prosperity across the regions and improving productivity.”
