Mixed signs regarding economic conditions in West Midlands - report

The NatWest PMI^® results for February showed mixed signs regarding economic conditions in the West Midlands.

There was a further solid rise in output, despite a slowdown in sales growth, while employment slipped back into contraction.

On the price front, cost inflation reached a seven-month high and the rate of increase in selling charges was broadly similar to January.

At 53.1 in February, equal to January, the headline 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 – highlighted a solid rate of expansion that was the joint-best since May 2023.

Sustained increases in new orders, demand resilience and promotional activity induced the upturn, according to panellists.

The latest PMI data signalled a further increase in new orders placed with West Midlands companies, stretching the current sequence of expansion to 13 months.

That said, the uptick was slight and the weakest since last November. Growth was reportedly curbed by economic uncertainty and sufficient stock levels among clients.

The local rise in sales was weaker than the national average.

Companies operating in the West Midlands signalled another increase in their expenses, which they attributed to greater food, material and shipping costs.

Currency fluctuations and disruptions in the Red Sea, alongside input shortages and the higher cost of living, were also cited as sources of price pressures. The rate of inflation quickened to a seven-month high.

Despite a stronger increase in input costs, the rate of charge inflation across the West Midlands was broadly aligned with that recorded in January.

Some panellists reportedly hiked their fees amid the pass-through of cost rises to clients. Others reduced them due to efforts to boost sales and expand market shares.

Out of the 12 monitored UK regions and nations, the West Midlands came fourth in the rankings for charge inflation in February.

February data showed a decline in private sector jobs across the West Midlands for the second time in three months, following stabilisation in January.

Firms linked the latest fall to the non-replacement of voluntary leavers, cost considerations and redundancies. Some also mentioned challenges retaining staff amid offers of higher pay elsewhere.

That said, the overall pace of job shedding was only slight. The reduction in payroll numbers across the West Midlands contrasted with fractional growth at the UK level.

As has been observed on a monthly basis since December 2022, private sector firms in the West Midlands signalled a fall in backlogs halfway through the first quarter.

The drop was linked to subdued demand conditions, efficiency gains and also staff working overtime. Nevertheless, work pending completion decreased at a moderate pace that was the slowest for ten months.

West Midlands firms remained strongly upbeat towards growth prospects, with close to 58 per cent of panellists anticipating higher output volumes and only 4 per cent signalling pessimism.

Hopes of better demand conditions were central to February's forecasts, alongside marketing efforts.

The overall level of confidence slipped to a three-month low, but remained above its long-run average.

Regionally, the West Midlands came third in the rankings for sentiment, behind the South East and Eastern England.

Rashel Chowdhury (pictured), NatWest Midlands and East Regional Board, commented: "February’s PMI data showed West Midlands output expanding at the joint-quickest pace in nine months, underpinned by resilient demand conditions, backlog clearing and efficiency gains.

“However, cost considerations, resignations and staff-retention challenges led to a renewed fall in local employment. Adding to the adverse dataflow was the presence of intense cost pressures.

“Business expenses rose to the greatest degree since mid-2023 as disruptions in the Red Sea, input shortages and the higher cost of living meant that local firms paid more for food, materials and shipping.

“Some companies shifted their additional cost burdens onto customers via higher selling prices, but others offered discounts amid attempts to gain market shares.”