Activity rises again but growth slowing – report

OUTPUT from West Midlands firms increased for an 11th consecutive month in December, according to a new report.

The latest NatWest PMI report for the region highlighted that output grew across the private sector but the rate of increase slowed to the weakest since February.

The headline 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, slipped from 54.3 in November to 50.7, signalling only a marginal rate of expansion.

Companies indicated that growth was curtailed by rising Covid-19 cases and its knock-on effect on consumer confidence while material and staff shortages were also cited as factors curbing output. December data also pointed to stagnant new orders at private sector companies in the region, with monitored firms indicating that sales were constrained by Covid-related uncertainty, fears over the spread of the Omicron variant and reduced client numbers.

The local trend was in stark contrast to that seen at the UK level where new business rose solidly despite a notable slowdown in growth.

Elsewhere, West Midlands firms continued to report rising operating expenses in December, with higher freight, raw material and wage costs mentioned in particular.

Increases were often attributed to shortages and the shipping crisis.

As has been the case since August 2020, inflation was more pronounced in the West Midlands than at the national level.

Ongoing increases in input costs continued to encourage West Midlands firms to hike their selling prices - the overall rate of charge inflation was sharp and quickened to the strongest since November 1999.

At the same time, private sector employment increased in December as companies looked to replace leavers ahead of a predicted rise in demand in the coming months.

But local job creation lagged behind the national average for the second month in a row and backlogs of work among West Midlands companies rose further at the end of the year, albeit fractionally.

Where an increase was reported, panellists mentioned difficulties hiring suitable staff and problems sourcing raw materials.

Overall, private sector companies in the West Midlands were strongly upbeat that output would expand during 2022, with optimism pinned on hopes that the pandemic and associated restrictions would recede.

John Maude, from NatWest’s Midlands and east regional board, said: “Growth in the West Midlands took a step back at the end of 2021 as the fast spread of the Omicron variant caused heightened uncertainty among customers who postponed purchases. Companies were also negatively impacted by shortages of staff and materials.

“While local output rose in December, overall sales were stagnant.

“However, firms expect the slowdown to be short-lived as seen by an improvement in business confidence towards the year-ahead outlook for output and sustained hiring.

“Of concern, however, a further substantial increase in expenses underpinned an unprecedented upturn in prices charged for local goods and services.”