The East Midlands economy experienced the sharpest drop in output since February 2021 last month, while business confidence slumped to its weakest since April 2020, according to the latest NatWest business survey.
However the grim findings of the latest seasonally adjusted Business Activity Index were slightly helped by suggestions that the rate of cost inflation had eased to a ten-month low.
According to its results East Midlands businesses said the decline in output was due to the impact of inflation on customer purchasing power, with client demand weakening further. The fall in activity contrasted with the UK average which pointed to a modest expansion in output.
East Midlands companies registered a third successive monthly contraction in new orders during July, with many cash-strapped customers already switching to essential purchases only.
The degree of optimism regarding the outlook for output over the coming 12 months weakened for the sixth month running in July, with expectations were at their lowest since the start of the pandemic – blamed on a reduction in customer spending, the cost of living crisis and wider concerns for the economy.
NatWest said: “East Midlands firms were among the least upbeat in the UK, with only the South West, the North East and Northern Ireland registering weaker expectations for activity.”
The data for July did however indicate a further upturn in workforce numbers across the East Midlands private sector, extending the current sequence of job creation to 18 months. The rate of growth in staffing numbers accelerated to the sharpest since March and was slightly quicker than the UK average.
Companies noted that greater employment was due to efforts to fill long-held vacancies and build workforces following the pandemic.
However there were continuing backlogs of work due to supply chain issues and costs were still going up.
John Maude, NatWest Midlands & East Regional Board, said: “Firms across the East Midlands continued to see demand conditions weaken in July as severe inflationary pressures weighed on customer spending.
“A further reduction in purchasing power led to a faster decline in business activity and the lowest degree of business confidence in the year ahead outlook since the depths of the pandemic in April 2020.
"Despite weak demand conditions, firms stepped up their hiring activity, with employment rising at the fastest pace for four months.
“Workforce numbers rose as firms sought to clear backlogs of work and rebuild staffing levels to those seen before the pandemic.
“Meanwhile, also encouraging to firms was a further softening in cost pressures during July. Although still historically marked, input prices rose at the slowest pace since September 2021.”
