The cost of living crisis is starting to have a big impact on customer demand and business activity, according to the latest monthly industry survey from NatWest.
However business leaders that took part said as cost inflation picks up, many selling prices were rising at a softer pace, while business confidence had risen to a four-month high.
The bank’s analysis signalled a solid contraction in business activity, and the second-fastest since the start of 2021.
Lower output was attributed to the impact of inflation and hikes in energy costs on customer spending.
Of the 12 monitored UK regions, only Northern Ireland and the South West recorded quicker declines in output than the East Midlands.
The region’s firms registered a further contraction in new business in September, extending the current sequence of decline to five months. Firms linked the fall in new orders to the impact of the cost of living crisis on customer spending and relatively weak client confidence.
The rate of decrease was strong overall and was the second-fastest since May 2020 – at the height of Covid.
Manufacturers and service providers both recorded sharp contractions in new business.
September data signalled an uptick in output expectations regarding the year-ahead, however across the East Midlands.
The degree of optimism reached the strongest since May, but was below the series average. Positive sentiment was attributed to planned investment in new product lines and marketing. That said, confidence was weighed down by concerns over inflation and pressure on customer disposable incomes.
Firms in the region were slightly more upbeat than the UK average.
Workforce numbers across the East Midlands private sector continued to increase at the end of the third quarter.
The rate of job creation picked up slightly and was stronger than both the long-run series average and that seen across the UK as a whole. Service providers recorded a faster rise in staffing numbers than their manufacturing counterparts.
The pace of employment growth was among the sharpest of the 12 monitored UK regions.
East Midlands firms also signalled a further substantial increase in cost burdens during September. Hikes in input prices were linked to greater energy and supplier costs, with a weak pound exacerbating imported inflationary pressures.
Service providers continued to record sharper increases in operating expenses compared to their manufacturing counterparts.
John Maude, who sits on the NatWest Midlands & East Regional Board, said the September data indicated another difficult month for East Midlands firms, with the cost of living crisis weighing on customer spending.
He said: “Demand for goods and services fell, leading to a fourth consecutive monthly decline in business activity. There was also an increase in cost pressures facing local firms, as a weaker pound added to factors pushing up prices.
“With companies recording the slowest rise in charges for goods and services for over a year in an effort to drive sales, the survey pointed to growing pressure on profit margins.
“Local businesses were hopeful of a pick-up in activity in the year ahead - and more so than in August - due to planned investment in new business lines and products, though the challenging economic backdrop meant that expectations remained by historically low.”
