Supported by an uptick in new business, West Midlands output expanded in October, according to a newly published report. Signs of improving demand conditions induced job creation while firms made further inroads into their backlogs.
Another positive from the latest results by NatWest was evidence of fading cost pressures. Input prices still rose but the rate of inflation eased to the weakest since September 2020.
The NatWest PMI report, a seasonally adjusted index that measures the month-on-month change in the combined output of the West Midlands' manufacturing and service sectors, posted 50.7 in October (September: 49.3), above the neutral level of 50.0 for the first time in three months and indicative of a slight pace of growth.
New product releases and demand resilience spurred the rise, anecdotal evidence showed. After broadly stagnating in September, new business received by West Midlands companies rose at the start of the fourth quarter.
According to monitored firms, the uptick stemmed from expanded clientele and improved demand conditions. That said, the overall pace of growth was slight and below its long-run average.
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High interest rates and subdued market confidence reportedly restricted new work intakes. The West Midlands came second in the regional rankings for sales, behind London.
October data signalled a third successive slowdown in cost inflation. Input prices still rose markedly but the rate of increase eased to the weakest since September 2020.
Elevated interest rates as well as higher material, transportation and wage costs fuelled the upturn in overall expenses, according to panel members. Subdued input demand and lower energy costs curbed the rise.
Out of the 12 monitored parts of the UK, the West Midlands recorded the slowest rate of cost inflation. Prices charged for West Midlands goods and services increased further at the start of the final quarter of 2023.
The rate of inflation was equal to that seen in September therefore remaining above its long-run average. Where fees had been adjusted upwards, monitored firms cited the pass-through of rising cost burdens.
Charge inflation in the West Midlands remained below that seen at the UK level.
There was a renewed increase in private sector employment across the West Midlands during October, following declines in August and September.
Some firms linked recruitment to the filling of existing vacancies while others mentioned being understaffed in recent months. There were also reports of apprentices being taken on.
Although moderate, the rate of job creation was the strongest since May. Regionally, only Scotland recorded a faster expansion in payroll numbers than the West Midlands.
As has been the case on a monthly basis for just under a year, private sector companies in the West Midlands signalled a fall in outstanding business volumes during October. The rate of depletion was solid, despite easing to the slowest since May.
Survey participants suggested that weak gains in new business and a concerted effort to push orders out of the door underpinned the latest decline.
Amid reports of a challenging economic landscape, companies downgraded their projections for output growth.
Positive sentiment was maintained, however, as several panellists expect demand conditions to improve and support business activity in the year ahead.
Expansion plans, new client onboarding, product diversification and planned investment were also cited as reasons to be optimistic. West Midlands firms were the most upbeat regionally.
Rashel Chowdhury, from NatWest's Midlands and east regional board, said: "The West Midlands fared better than most of its regional peers in October, posting the second-best trends for output, new orders and employment at the start of the final quarter of 2023.
"Despite a downward revision to growth prospects, local firms were more upbeat towards the year-ahead outlook for business activity than anywhere else in the UK.
"Output charge inflation steadied at a joint 34-month low, with another retreat in cost pressures suggesting that there could be slower increases in prices charged for goods and services in the coming months."
