March saw the first rise in output for North East manufacturing and services firms in nine months amid stronger demand and renewed confidence, a new report shows.
But despite the promising indicator, businesses still continued to shed staff and faced significant cost pressures. Data in the NatWest North East PMI Business Activity Index shows North East firms experienced the first output expansion since June 2022, and the region also crept up the regional rankings from last to eighth of 12 UK regions monitored.
New business rose for the third month running, and at the sharpest rate since August 2021, which NatWest said had helped to spur confidence to a 12-month high, but still the weakest among all regions. Only London saw a faster rise in new orders across March.
Confidence was said to be linked to new customers, reorganisation plans, national marketing campaigns and investment. However, the survey research found North East employers reduced their workforces across March - a trend which has now continued for ten months - and at the second strongest rate in more than two years. Firms also reported workers leaving for better paid roles and difficulties filling vacancies - a dynamic echoed recently by RSM economist Tom Pugh who said labour shortages were challenging companies.
Meanwhile, cost headwinds eased to a 26-month low but with inflationary pressure remaining high overall. Firms pointed to raw materials, energy, fuel and salaries costs, as well as Brexit, as sources. The seasonally adjusted Input Prices Index was still above its long-run trend level of 59.4, but well down on the record high of 87.2 posted last June. Input price inflation in the North East was the second-highest among the regions, with only London seeing a steeper rise in average input prices.
Regional firms increased prices in response as the rate of output price inflation remained historically high, but eased to a 25-month low in March. Charge inflation in the North East was broadly in line with the UK average in March, which eased to a 23-month low.
Malcolm Buchanan, chair of the NatWest North Regional Board, said: "The North East returned to expansion in March, with the first overall rise in business activity across the combined manufacturing and service sectors since June 2022. This reflected the sustained growth of new business throughout the first quarter of 2023, which accelerated to a 19 month high in March. Moreover, only London saw a steeper gain in new work than the North East.
"Although the North East ascended the UK regional rankings, its rate of expansion was only modest. Moreover, firms shed jobs at a faster rate during the month, leaving the region at the bottom of the UK employment rankings. Input price inflation eased to the lowest in over two years, but still remained historically strong."
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