Business activity growth slows only marginally from April's 25-month high

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NatWest has released its West Midlands PMI® Business Activity Index, examining business activity for the region

The NatWest PMI® data for May highlighted a desirable combination of strong growth and receding inflation across the West Midlands. Job shedding slowed, although some firms continued to note difficulties finding suitable candidates for open job roles. Meanwhile, business confidence hit a three-year high. Key Findings:

  • Solid increases in sales and output
  • Level of business confidence among highest on record
  • Substantial slowdown in cost pressure curbs charge inflation

Posting 54.2 in May, the headline NatWest West Midlands PMI® Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – indicated growth for the eighth successive month. Despite falling from April's 25-month high of 55.5, the latest reading was consistent with a marked pace of expansion that was above its long-run average. Among the key determinants of growth listed by panellists were positive demand trends, better economic conditions and new client wins. For the sixteenth successive month, new orders placed with private sector companies in the West Midlands rose in May. Little-changed since April, the pace of expansion was solid. According to survey participants, better economic conditions, improved client confidence and demand resilience supported sales. West Midlands firms were at their most upbeat towards the year-ahead outlook for output since May 2021. Moreover, the respective index posted one of its highest readings in the series history. Signs of improving economic conditions and better trends for tourism, alongside marketing efforts and new business in the pipeline, boosted sentiment. The West Midlands recorded the highest level of business confidence of the 12 monitored UK regions and nations. Input prices rose again in May, but the rate of inflation eased considerably since April. The latest increase was the slowest in six months and weaker than the long-run series average. Some firms noted higher food, fuel, material and wage costs. Others reported lower prices for electricity, energy, stainless steel and hydrocarbons. Regionally, the West Midlands placed bottom in the rankings for cost inflation in the latest month. Output charges continued to increase in May, as several firms sought to share part of their additional cost burdens with clients. The overall rate of inflation was marked, but slowed to the weakest in nearly three-and-a-half years. Some companies reportedly refrained from hiking their fees amid softer cost pressures and efforts to boost sales. The West Midlands was around mid-table in the regional rankings for charge inflation. Employment across the West Midlands continued to fall in May, thereby stretching the current sequence of contraction to four months. That said, the pace of reduction was modest and the weakest since February. Anecdotal evidence indicated that firms found it difficult to replace voluntary leavers amid a lack of suitable candidates. There were also mentions of voluntary redundancy programmes. Job shedding locally contrasted with marginal growth at the UK level Despite a further decline in payroll numbers, West Midlands firms made further inroads into their backlogs in May. The rate of depletion was moderate, however, and broadly similar to that seen in April. Efficiency gains were among the reasons behind the latest contraction in work pending completion. Dipesh Mistry,Chair of the NatWest Midlands and East of England Regional Board, commented: "West Midlands firms' ability to price more competitively, owing to receding cost pressures, spurred demand for local goods and services. The solid increase in new orders seen in May underpinned a marked upturn in output and boosted business confidence. Companies in the region were more upbeat than anywhere else in the UK. One challenge encountered by survey participants was the inability to find skilled job applicants for existing vacancies, a key factor that led to a fall in overall employment. However, the rate of job shedding at least softened to the weakest in three months."

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