Firms in the East faced price inflation at a 32-month high in February with transport bottlenecks, higher freight costs, and material shortages taking their toll.
But there is hope with business expectations boosted by the Covid-19 vaccine and a return to normality on the horizon.
The findings come as part of the headline NatWest East of England PMI Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors.
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The index rose from 43.5 in January to 49.0 in February, signalling a rate of reduction in business activity that was markedly slower than that seen at the start of the year.
Private sector firms in the East of England recorded a second successive reduction in new business received in February. Panellists that mentioned a decline cited COVID-19 related restrictions and weak client demand. However, with some firms – mainly manufacturers – reporting growth in new business wins, the rate of contraction softened considerably from that seen in January and was only fractional overall.
John Maude, NatWest Midlands & East Regional Board, said:
"Private sector activity in the East of England declined again in February with COVID-19 lockdown restrictions persisting during the month. That said, the latest fall was only marginal with rates of reduction in business activity and new orders easing notably from those seen in January. The real cause for concern comes from sharper price pressures faced by companies. Transportation bottlenecks, higher freight costs, and material shortages all helped accelerate the rate of input price inflation, which was robust and at a 32-month high.
"On a more positive note, firms’ expectations were boosted by the so far successful vaccination programme which added to hopes of a return to normality over the course of the year. Moreover, the government roadmap for easing restrictions suggests that firms could see strong improvements in the demand environment in the second quarter. It seems some firms are already gearing up for better times ahead, with employment rising for only the second time in the past year.
Key Findings
Fractional decline in new order volumes
Renewed expansion in workforce numbers
Expectations climb to the strongest since May 2016
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February data indicated that private sector firms in the East of England remained confident about output volumes growing over the next 12 months. Firms often mentioned that hopes of easing restrictions, greater demand and business expansion plans underpinned positive sentiment. Moreover, the degree of optimism climbed to the strongest in almost five years.
Sentiment also strengthened at the 海角视频 level during February and was slightly stronger than that seen in the region.
Private sector firms in the East of England recorded an expansion in staffing levels in February. The rate of job creation was marginal but contrasted with the marked decline seen at the start of the year. Panellists often mentioned that expectations of higher output and demand over the coming months had driven the uptick.
In contrast, job shedding persisted across the 海角视频, and of the 12 regions monitored, only firms in the East Midlands, Yorkshire & Humber and the East of England added to staffing levels.
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The level of outstanding business at private sector firms in the East of England rose during February. According to panel members, difficulty obtaining inputs and insufficient workforce numbers led to the rise. The rate of increase was only marginal, however.
The result seen in the East of England contrasted with declines in all 11 other regions monitored.
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February survey data signalled a substantial increase in cost pressures faced by private sector firms in the East of England. According to panel members, higher transportation costs and material shortages led to increased charges from suppliers during the month. The rate of input price inflation was marked overall, and the sharpest since June 2018.
At the sector level, both service providers and manufacturers recorded a rise in cost burdens, although the latter noted a much sharper uptick.
Average prices charged by businesses in the East of England increased in February, as has been the case since last July. Moreover, the latest rise was the fastest since January 2019. Anecdotal evidence suggested higher raw material costs were often passed onto customers.
Selling prices also rose across the 海角视频, though the rate of inflation was softer than that seen in the region.