North East companies saw a third successive month of expansion in May – but they also saw the first fall in new business all year.
That was the finding of the headline NatWest North East PMI Business Activity Index, the seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors.
The index fell from April’s 21-month high of 55.8 to 51.0, indicating a slower rate of growth, and having been the second-strongest performer of 12 UK regions in April, the loss of momentum in May saw the North East slip to eighth in the rankings. A slight fall in new work weighed on output in May, leading to a renewed decline in employment. On a more positive note, input price inflation eased to its weakest rate since November 2020, despite ongoing wage pressures.
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Private sector firms in the North East registered lower incoming new work in May, ending a four-month period of expansion, but the rate of contraction was only marginal. The renewed decline in incoming new business in May relieved pressure on capacity, resulting in the fastest drop in outstanding work in four months. Backlogs at private sector firms in the North East have declined continuously since January 2022, the longest sequence of all 12 UK regions.
The North East was one of only three UK regions to post lower demand in May, the others being the neighbouring areas of Yorkshire and Humber, and the North West.
The Future Activity Index fell from April’s 18-month high in May, indicating a moderation of the 12-month outlook held by North East companies. That said, confidence was still the second-highest in over a year as firms expect economic conditions to improve and client destocking to end. Business confidence in the North East remained among the lowest in the UK, with only Northern Ireland posting a weaker Index reading in May. The North East has consistently ranked among the bottom-three UK regions since August 2020.
The seasonally adjusted Employment Index fell back below the no-change mark of 50.0 in May, signalling a fall in staffing levels for the twelfth time in the past 14 months. However, the latest rate of job shedding was a small dip, partly linked to the release of agency as opposed to permanent staff. The only other UK region to see falling private sector employment in May was Wales and the strongest increases were in Scotland and Northern Ireland.
Average input prices rose at the slowest rate in two-and-a-half years during the month, with some companies citing the easing of cost pressures as a reduction in fuel prices. However, the index was still well above its average of 59.5, with anecdotal evidence pointing to wage pressures.
Prices charged for goods and services in the North East rose sharply again in May, linked to the pass-through of increased wages and material costs to customers. The rate of inflation eased since April and was the second-weakest in just over two years, but still above anything seen prior to March 2021.
Malcolm Buchanan, chair of the NatWest North Regional Board, added: “There were both positives and negatives to take from the latest set of PMI data. The renewed fall in new orders was the main weak point, although the decline was only marginal and followed three solid increases. Growth of total activity inevitably slowed, but again should be viewed in the context of April’s strong expansion.
“A sustained recovery hinges on inflation coming down in the second half of the year, and the two price indices moved in the right direction in May. Input price inflation eased to a two-and-a-half-year low, although wage pressures remained a key factor. Charge inflation also softened but remained historically high.”
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