West Midlands business sees a return to growth

The latest Natwest West Midlands purchasing manager's index found output was strengthened by a faster rise in new orders, which also led firms to raise employment for the first time since last July.

Reduced political uncertainty and plans for increased investment encouraged greater optimism for the year ahead, with confidence reaching its highest level since April 2017.

Stronger demand growth also led firms to set higher output charges, with the rate of inflation quickening to an eight-month high amid a sharper rise in overall input costs.

The headline West Midlands business activity index – a seasonally adjusted index that measures changes in the combined output of the region’s manufacturing and service sectors – jumped to 51.6 in January to signal the strongest upturn in business activity since last April. This contrasted with a reading of 49.3 in December that indicated a slight downturn in output.

According to respondents, activity grew due to increased demand and the commencement of new contracts.

New business across the West Midlands rose at a faster pace at the start of the year. The rate of growth was the second-quickest for nearly a year-and-a-half, albeit modest overall and mostly driven by higher new work at services firms.

Businesses often said that the easing of Brexit-related uncertainty led clients to raise their order volumes.

Employment numbers expanded at firms in the West Midlands during January. The modest expansion was the first seen in six months, and matched the pace of increase in workforces across the UK as a whole. Companies stated that additional workers were hired to meet greater output requirements. At the same time, latest data signalled a further sharp decline in outstanding business.

Rising sales led firms to set higher output charges in January, with the rate of inflation accelerating to the quickest since last May. However, the pace of increase was weaker than that seen across the UK as a whole.

Companies meanwhile commented on upticks in salaries and prices of fuel and raw materials. As a result, the rate of input price inflation quickened to a four-month high.

West Midlands firms showed greater optimism toward the year-ahead outlook for activity in January. The level of confidence was the strongest since April 2017, with the UK as a whole also registering an improvement in optimism. Greater positive sentiment was often related to easing uncertainty and plans to introduce new products and services this year.

John Maude, of the NatWest Midlands and East regional board, said: "Reflecting the trend seen across the UK, business activity in the West Midlands moved into expansion territory during January. Companies enjoyed a quicker rise in new business and subsequent increase in employment levels, with many often relating the rebound to reduced uncertainty surrounding the Brexit process.

"That said, the region lagged behind the nation as a whole in terms of both output and new order growth, signalling that client demand was weaker than across much of the UK. On the other hand, the level of confidence surged to the second-highest in the regional rankings, showing that firms remain optimistic that the West Midlands will grow throughout 2020."