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Birmingham Post
Birmingham Post
Business
Tamlyn Jones

Contractions in new business and output soften in October - report

West Midlands companies again struggled to secure new business in October which led them to trim output further, according to new research.

Despite this, the NatWest 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, rose from a 20-month low of 47.8 in September to 49.6, close to the 50.0 no-change mark and indicative of a marginal rate of contraction.

Where a fall was reported, survey participants mentioned reduced spending at clients amid recession fears and financial difficulties.

Private sector firms in the West Midlands signalled another fall in new business intakes during October, the fifth in consecutive months, the newly published report said. The cost-of-living crisis, price pressures and recession fears reportedly stymied demand.

The overall rate of contraction was modest, however, and eased from September. The reduction seen in the West Midlands was the second-slowest regionally, faster only than that recorded in London.

There was another monthly increase in the operating expenses of private sector companies in the West Midlands during October.

The rate of inflation quickened to a three-month high and was historically steep but was softer than most of those seen over the past year.

Panellists cited sterling weakness, wage pressures, energy price volatility, input shortages and a generally inflated market. The West Midlands was one of four regions to record an accelerated rise in input costs, with slowdowns registered elsewhere.

Prices charged for goods and services in the West Midlands increased sharply again at the start of the fourth quarter albeit at the slowest rate since August 2021.

Those companies that hiked their fees commonly mentioned the pass-through of rising expenses to customers. In contrast to the trend for input costs, the local rate of charge inflation outpaced the national average.

Despite ongoing declines in new business, private sector companies in the West Midlands continued to take on additional workers in October.

Furthermore, the rate of expansion was solid and the quickest in three months. Where growth was reported, survey participants indicated that vacant positions had been filled and voluntary leavers replaced. In terms of job creation, the West Midlands came second in the regional rankings.

October data highlighted a renewed upturn in unfinished business volumes among West Midlands companies, following declines in each of the prior two months. Where a rise was reported, survey members commented on input delivery delays, labour shortages and constrained capacity.

West Midlands companies remained confident of a rise in output over the course of the coming 12 months. That said, the overall level of positive sentiment slipped to its lowest mark since the first covid-19 lockdown in early-2020 and was historically subdued.

Anecdotal evidence indicated that optimism was restricted by concerns over the economic outlook and customer spending. Regionally, the West Midlands came third in the rankings for business confidence.

Rashel Chowdhury, from NatWest's Midlands and east regional board, said: "Economic uncertainty and price pressures continued to negatively impact the performance of the West Midlands economy in October, with clients cutting spending and firms scaling back output again.

"To a certain degree, it was comforting to see the downturn in the region wasn't as deep as in other areas of the UK and that rates of contraction at least softened from September.

"Yet, companies were increasingly worried about the economic outlook and customer spending behaviour, reasons which dragged down business confidence to a level unseen since April 2020.

"Of concern to local firms, cost pressures intensified while their pricing power diminished due to weak demand conditions."

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