Private Sector Activity Grows at 7-month Low

July 09, 2012 /

Slower output growth was seen in the majority of English regions during June, continuing the weakening trend seen throughout the second quarter of 2012, according to the latest Lloyds TSB regional Purchasing Managers’ Index® (PMI®).

Compiled by Markit for Lloyds TSB Commercial, this report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 1200 private manufacturing and services companies. The panel is carefully selected to accurately replicate the true structure of the private sector economy.

At 51.3, the index measuring overall private sector business activity in the English regions indicated only a marginal rise in output, with figures over 50 showing an increase on the previous month. This represented the slowest rate of expansion since November 2011, and was down from 52.3 in May. While some firms suggested that the weaker figures reflected the extra bank holiday and unusually bad weather in June, there were also widespread reports of less favourable underlying business conditions.

Business activity growth was strongest in Yorkshire & Humber and the West Midlands respectively. In contrast, the North West saw an output stagnation, while reductions were registered in the East of England and the North East. Reduced business activity in the North East has been recorded in each month since March, and the latest fall was the sharpest for three years. June’s data also pointed to reduced levels of manufacturing production in the English regions, alongside slower rates of service sector growth during the latest survey period.

Slower output growth followed a near-stagnation in new business levels across the English regions as a whole. June’s survey indicated only a slight overall rise in new work, and the pace of expansion was the weakest for three years. Only five of the nine English regions posted an increase in incoming new orders, led by Yorkshire & Humber. The North East was the worstperforming region for incoming new business, registering the sharpest decline since March 2009.

Subdued client spending meant that business activity was again supported by work on outstanding projects during June. All nine regions reported a drop in backlogs of work, with the fastest reduction in the South West and the slowest in London.

Weak gains in new work also contributed to cautious hiring trends across the English regions during June. Overall, the latest increase in workforce numbers was only marginal and the slowest in 2012 to date. A solid rise in workforce numbers in the East Midlands contrasted with the sharpest drop in North East private sector employment since August 2009.

Input cost inflation slowed markedly in June, helped in part by falling fuel and raw material prices. Across the English regions overall, the pace of cost inflation was the lowest for nearly three years. Meanwhile, output charges continued to decline marginally during June, reflecting efforts by regional businesses to boost demand through price discounting.

John Maltby, group director, Lloyds TSB Commercial, said: “Private sector businesses saw another expansion of their output levels in June, showing some impressive resilience in the face of an increasingly unfavourable global economic backdrop. However, firms could not entirely escape the economic stagnation, with new order levels rising at the slowest pace in three years and output growth hitting its lowest since late-2011. Almost all regions have seen a weakened trend in business activity on average over the second quarter of 2012, with the North East and North West standing out as the main underperforming areas. Some help has arrived for local businesses in the form of sharply reduced cost pressures at the mid-point of the year, which should both improve firms’ margins and support consumer demand by alleviating the squeeze on households’ real incomes.”


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