West Midlands output and sales rise modestly in September

The headline West Midlands 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 – fell from 52.2 in August to 51.2 in September, indicating a further increase that was nevertheless softer than in the previous month. Monitored companies stated that new client wins and repeat orders from existing customers supported output growth. The upturn was reportedly constrained by political uncertainty and economic challenges at key export partners.

Amid reports of demand resilience and the securing of new customers, private sector companies in the West Midlands noted a further expansion in order book volumes. Although marginal and below its long-run average, the pace of growth accelerated from August. Nevertheless, qualitative data accompanying the survey indicated that sales growth was constrained by macroeconomic challenges among export partners in Europe, deferred investment and public policy uncertainty.

The seasonally adjusted Input Prices Index rose to a five-month high in September, indicating a pick-up in cost pressures across the West Midlands. Survey participants stated that unfavourable exchange rate movements, greater outlays on labour and material price hikes fuelled inflation. Companies continued to share additional cost burdens with their clients by lifting selling prices in September. The rate of charge inflation was marked but unchanged from August.

Lisa Phillips, Regional Managing Director, Midlands and East, Commercial Mid Markets"A modest recovery in sales growth supported a further increase in West Midlands output during September, but underlying data revealed some near-term headwinds. When completing the survey, local firms expressed concerns around public policy uncertainty, particularly in light of the upcoming Autumn Budget announcement and potential tax rises. This temporary lack of clarity dampened business confidence, which slipped to a 21-month low. Companies refrained from hiring extra workers in September, with reports of hiring freezes and redundancies becoming more common. Rising cost pressures was the main culprit behind job shedding."

Performance in relation to UK

West Midlands business activity rose at a softer pace than that seen at the national level.

Only Scotland and the East of England recorded softer increases in sales than that seen locally, NatWest data showed.

Although business confidence remained positive in September, it retreated to its lowest level since December 2022. Among the main factors worrying local firms were public policy uncertainty, including the possibility of tax rises, and economic difficulties faced by European export partners. The degree of optimism was below the UK average.

After nearly stabilising in the previous two months, private sector employment in the West Midlands decreased to a moderate degree in September. When explaining the latest decline in staff numbers, panel members remarked on cost-cutting efforts. The drop was partly achieved through redundancies, unplanned resignations and hiring freezes. Alongside the West Midlands, five other areas of the UK recorded job shedding. Northern Ireland registered the strongest increase in employment, while Wales saw the fastest fall.

September data highlighted a twenty-second consecutive decline in outstanding business volumes at West Midlands firms. The rate of depletion was moderate, however, and the slowest since June. Greater input availability and relatively subdued demand allowed firms to clear pending workloads, anecdotal evidence showed.

The local rate of increase in input costs was broadly in line with both its long-run trend and the national average. The West Midlands came sixth in the regional rankings for output price trends, with its rate of inflation matching the UK-wide figure.