Regional business activity shrinks at start of second quarter

The NatWest Yorkshire & Humber PMI Business Activity Index rose for the first time since the beginning of the year from 46.9 in March to 47.3 in April, but remained below the 50.0 no-change mark.

The region was the only monitored part of the UK to see private sector output shrink at the start of the second quarter. The decrease in the region’s economic activity contrasted starkly with the UK-wide trend, which signalled the fastest expansion in a year.

Notably, Yorkshire & Humber was the worst-performing part of the UK, both in terms of business activity and new orders, as was also the case in the previous month. That said, business confidence remained strong, while employment levels across the region were only marginally reduced, despite widespread reports of intensifying wage pressures.

Malcolm Buchanan, chair of the NatWest North Regional Board, said, “April marked yet another challenging month for the Yorkshire & Humber private sector, which was once again the only part of the UK to see a decrease in business activity.

“That said, April data was better with the rate of contraction slowing since March. Positively, growth expectations remain above UK trend and with economic conditions domestically and abroad improving, this should provide tailwinds for growth in the coming months.”

The level of new business received by private companies in Yorkshire & Humber continued to shrink in April. The rate of decline was fractionally faster than that seen in March, and was therefore the quickest since November last year. Weak client confidence was linked to the reduction in sales, while some respondents commented on generally subdued demand conditions across various industries.

Notably, Yorkshire & Humber was one of just two parts of the UK to see a drop in new business, with the region also seeing the quickest fall.

The Future Activity Index posted well above the 50.0 no-change mark, signalling robust growth expectations by private sector firms in Yorkshire & Humber during April. New product releases, strategic business changes and forecasts of greater customer numbers underpinned optimism, anecdotal evidence showed.

Although the level of positive sentiment dipped to a three-month low, it was slightly stronger than seen for the UK on average.

Continuing the trend which began in February, private sector businesses in the region cut their workforce numbers during the latest survey period. The non-replacement of leavers was commonly noted as a reason for lower staffing capacity, anecdotal evidence showed.

However, the decrease in employment was only marginal overall. This compared with broadly unchanged staffing levels at the broader UK level.

Posting below the 50.0 no-change threshold for a fourteenth successive month in April, the seasonally adjusted Outstanding Business Index signalled a sustained reduction in the volume of work pending completion at private sector companies in Yorkshire & Humber.

Furthermore, the latest data pointed to a solid decrease in backlogs of work, and one that was the quickest of all 12 monitored parts of the UK.

Private sector companies in Yorkshire & Humber recorded a further steep month-on-month increase in their overall operating costs in April. Moreover, the rate of inflation quickened markedly from March to its highest in a year. Greater wage pressures were reported by survey respondents, in addition to higher costs associated with raw materials, fuel, insurance and the distribution of goods.

Prices charged for the provision of goods and services continued to be raised by companies in Yorkshire & Humber, latest survey data showed. In many cases, selling prices were lifted to offset the impact on margins from greater costs. That said, the extent to which output charges rose was moderate and the slowest for three months.

Yorkshire & Humber recorded the second-softest rate of selling price inflation of the 12 monitored parts of the UK, with only the North West seeing a slower pace of increase.