Output falls as demand drops and prices rise

BUSINESS conditions in the West Midlands worsened further in September with companies trimming output due to reduced new order intakes, weak underlying demand and acute price pressures, according to new research.

The latest NatWest PMI Business Activity Index, a seasonally adjusted index that measures the month-onmonth change in the combined output of the region’s manufacturing and service sectors, fell from 49.3 in August to 47.8 in September.

This signalled a second successive drop in output and one that was the fastest since January 2021.

Moreover, the rate of contraction was sharper than the UK average.

September data highlighted a fourth consecutive fall in new work intakes at West Midlands companies and the rate of contraction was the fastest in 20 months.

According to panellists, the downturn stemmed from rising energy costs, acute price pressures and troubles in financial markets.

After easing in each of the prior three months, the rate of input cost inflation accelerated during September.

The latest increase was steep relative to the series average but was among the weakest over the past year-and-a-half.

NatWest said panellists blamed inflationary pressures on raw material scarcity, the war in Ukraine, sterling weakness and energy price volatility alongside higher costs of food, fuel and labour.

There was a substantial upturn in prices charged for goods and services in the West Midlands at the end of the third quarter.

Although softening to the slowest since October 2021, the rate of inflation was much higher than its longrun average.

Charge inflation in the West Midlands was a tick lower than that recorded across the UK. Private sector firms in the West Midlands were at their least upbeat towards growth prospects since May 2020 in September.

For the nineteenth month in a row, West Midlands companies signalled job creation in September.

The overall rate of increase was solid but the weakest in a year-anda-half.

Where additional hiring was reported, survey participants mentioned the replacement of voluntary leavers and the expansion of some departments.

A lack of capacity pressure, subdued demand, skill shortages and staff leaving for careers elsewhere reportedly weighed on overall employment growth. As was the case in August, private sector companies in the West Midlands noted a reduction in outstanding business volumes during September.

Moreover, the rate of depletion was solid and the fastest in close to two years. Monitored companies indicated that improved efficiency, job creation and lower sales all drove the latest clearing of unfinished workloads.

John Maude, a member of NatWest’s Midlands and East regional board, said: “West Midlands companies reported increasingly challenging economic conditions at the end of the third quarter, as households continued to slash spending amid elevated inflationary pressures.

“With the downturn in new business intensifying and the outlook turning gloomier, firms scaled back output volumes in September.

“Local companies remained hopeful of a rebound in business activity in the coming 12 months but sentiment slipped to its lowest level since early-2020 amid growing concerns that the UK economy is heading towards a recession and that acute price pressures will dampen sales.

“Worryingly, cost inflation reaccelerated in September after retreating in each of the prior three months.”