New business shrinks before cost pressure eases

7:30 am 9th August 2022

A survey shows business activity in eastern England is falling as orders begin to dry up.

NatWest’s East of England PMI Business Activity Index reflects a decline in business activity in the region as companies grapple with market uncertainty.

Last week, the Bank of England predicted inflation would rise above 13% and the UK would face a recession lasting more than a year as concerns grew about the state of the economy.

The NatWest survey showed a second straight month of decline after 15 months of growth among manufacturers and service companies in the region.

The index fell from 47.9 to 46.8 – with 50.0 showing no change and figures above that indicating an increase in activity.

Anecdotal evidence suggested that weak customer appetite, market uncertainty and increased delivery times were contributing to the slowdown in the sector, the banking group said, while private production increased marginally nationally.

While orders declined among firms in the sector, the rate of reduction slowed, it said, with rising prices and lower disposable income impacting sales.

The sector saw new business shrinking – while it grew slightly nationally. Confidence was also lower than in other parts of the UK – although hopes were strengthened among Eastern businesses from their lows in June as companies pinned their hopes of continuing their recovery from the pandemic, higher investments, product launches and improved customer demand Had happened.

But there was positive news. The workforce grew in the East – and the rate of job creation rose to a three-month high – with activity being the third strongest among the 12 regions – and behind only the South East and London.

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The work backlog fell – with the increased workforce, all contributing to a lack of new businesses and order cancellations.

Raw material shortages, high transportation costs, rising energy bills and currency fluctuations contributed to input price inflation – and companies responded by raising their own prices for goods and services. However, in both cases, these increases were softer than before.

NatWest Midlands and Eastern Regional Board member John Maude said the figures showed cooling inflationary pressures, with average prices for goods and services rising at a softer rate.

“Nevertheless, price increases still remain historically high. Furthermore, rising prices hit customer demand as the cost of living crisis deepens,” he said.

“While the second half of the year started on a weak note, we saw business confidence strengthen to a three-month high. Firms expected business activity to pick up in the coming 12 months, following a sustained post-pandemic Backed by the recovery and new products coming to market.”