West Midlands Business Confidence Hits Three-Year High Despite Job Shedding Challenges

The West Midlands economy continued to show resilience in May, with the NatWest West Midlands PMI business activity index indicating growth for the eighth consecutive month. Despite a slight dip from April’s high, the latest reading of 54.2 pointed to a marked pace of expansion that exceeded the long-run average. Positive demand trends, improved economic conditions, and new client wins were cited as key drivers of growth by survey participants.

One of the most encouraging signs was the sustained increase in new orders placed with private sector companies in the region for the 16th straight month. This solid pace of expansion was supported by better economic conditions, improved client confidence, and demand resilience. These factors contributed to a positive outlook for output in the year ahead, with the West Midlands recording one of its highest readings in the series history. Business confidence in the region hit a three-year high, outperforming all other UK regions and nations.

While input prices rose in May, the rate of inflation eased considerably from the previous month. Some firms reported higher costs for food, fuel, materials, and wages, while others noted lower prices for electricity, energy, stainless steel, and hydrocarbons. Despite these cost pressures, output charges continued to increase as companies sought to pass on some of their additional costs to clients. The overall rate of inflation slowed to the weakest in nearly three-and-a-half years, reflecting softer cost pressures and efforts to boost sales.

Employment in the West Midlands continued to decline in May, marking the fourth consecutive month of contraction. However, the pace of reduction was modest and the weakest since February. Firms cited difficulties in finding suitable candidates for open job roles, as well as voluntary redundancy programs contributing to the job shedding. This contrasted with marginal growth at the UK level.

Despite the decline in payroll numbers, West Midlands firms managed to reduce their backlogs in May. Efficiency gains were among the reasons behind the moderate rate of depletion, which was similar to that seen in April. Dipesh Mistry, chairman of the NatWest Midlands and East of England regional board, highlighted the region’s ability to price competitively due to receding cost pressures, which in turn spurred demand for local goods and services.

Mistry also noted the challenges faced by survey participants in finding skilled job applicants for existing vacancies, which contributed to the fall in overall employment. However, the rate of job shedding softened to the weakest in three months, indicating a potential turnaround in the labor market.

Overall, the latest data from the West Midlands PMI survey paints a positive picture of the region’s economic performance. With sustained growth in business activity, solid new orders, and high levels of business confidence, the West Midlands is well-positioned to continue its economic recovery. Despite challenges in the labor market, the region’s ability to adapt to changing conditions and drive efficiency gains bodes well for future growth and prosperity.