Activity rises but firms forced to increase prices

COMPANIES in the West Midlands managed to secure more work in October despite charging more for goods and services.

The 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, was up from 56.3 in September to 56.9, signalling growth for the ninth month in a row and the strongest increase since July.

Firms cited increased capacity, strengthening demand and rising customer numbers as the reasons for higher business activity last month.

At the same time, firms across the region recorded an eighth consecutive monthly rise in new work intakes during October, due to improved market confidence, better underlying demand and the easing of travel restrictions.

But unfinished work among West Midlands firms rose last month and the pace of backlog accumulation was sharp.

Panel members put this down to staff and material shortages.

Elsewhere, West Midlands companies continued to report higher operating expenses in October, with the overall rate of inflation accelerating from September.

The latest increase was the third sharpest in the series’ history, beaten only by those recorded in June and July 2008.

Raw material scarcity, labour shortages, difficulties with transportation and the supply chain crisis were among the reasons cited for rising expenses.

And for the second month in a row, the overall rate of output charge inflation in the West Midlands reached a series record.

One third of monitored companies signalled higher output charges, against only one per cent that reported a reduction.

Firms overwhelmingly linked the upturn in fees to the sharing of additional cost burdens with clients.

Output prices in the West Midlands continued to increase at a stronger rate than that seen across the UK as a whole.

Overall, private sector companies in the West Midlands remained strongly confident that business activity would expand over the course of the coming year.

The overall level of positive sentiment fell slightly from September but remained well above its long-run average.

Survey members indicated that demand was expected to strengthen as the pandemic receded, supporting output, and some hoped to secure new clients and intended to innovate.

The degree of optimism among local firms outstripped the UK average. In terms of employment, private sector jobs in the West Midlands rose further in October, stretching the current sequence of growth to eight months.

Regionally, the West Midlands came third in the rankings for job creation, behind London and the North West.

John Maude, from NatWest’s Midlands and East regional board, said: “West Midlands companies welcomed a strong influx of new work in October which led them to scale up output and create more jobs.

“However, companies reported challenges finding suitable candidates to fill open vacancies and struggled to source several materials.

“These shortages led to a substantial increase in their expenses which in turn were passed on to customers.

“Prices charged for goods and services rose at an unprecedented rate, a factor that may dampen demand in

the coming months.”