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Regional Output Performance Accelerates Further in April

Corin CraneThe West Midlands recorded the strongest regional output growth according to the latest Lloyds Bank Regional PMIs. In the region, growth accelerated further with output increasing at the fastest rate in two years, with the PMI recording 60.3 in April (the strongest nationally) from 56.1 in March.

Although inflationary pressures stabilised, price pressures remain tight and there is evidence of producers feeding increased costs through to consumers. However, confidence about future business prospects firmed further, bolstered by both business activity and new orders growth rates, which exceeded current UK averages. Price pressures continued to prove challenging, however overall private sector performance was boosted by continued rapid growth in output, new orders and employment take-up. 

In contrast to PMI data over the first four months of the year, official data provides a more constrained picture of economic activity. Noticeably, despite more vigorous growth in the final quarter of 2016 (0.3%), in the first quarter of this year production increased by 0.1%, with a monthly fall recorded of -0.5% in March. The discrepancy, in part, is that much of the production decline has been in the oil-related sector, and not in industries concentrated in the Midlands, notwithstanding problematic conditions in the basic metals sector.

Whilst imported inflation appears to be easing, as Sterling stabilises and some global commodity prices soften, price pressures in the first four months of the year appear to be firmer, in part perhaps due to tightening global metals prices, than Britain overall.

Expectations of future business have firmed since the EU Referendum result in June last year, and have firmed further since the activation of Article 50 in March. However, qualms may emerge during Brexit negotiations, which are now expected to progress between commencing in October 2017 to conclusion in October 2018.

Corin Crane, Chief Executive of the Black Country Chamber of Commerce, commented: “Growth in overall output, new orders and employment demand have contributed to another impressive performance for the region, fuelled in no small part by the dynamism of the Black Country manufacturing sector. Inflationary pressures remain acute and with formal employment levels tightening, the next government’s policies to tackle these will be crucial. Positive business sentiment has also been recorded in our surveys and responses from members, therefore boding well for the future”.

The latest experimental data release by the ONS on regional services sector exports provide disappointing reading for the Midlands. In 2015, the West Midlands was estimated to provide 2% and 3% of total national service sector exports respectively. Understandably, London provides the bulk of service sector exports, but with London and the South East estimated to provide close to 62% of all services sector exports seems to overstate their importance. Indeed, the fact that financial services provide almost 29% of the region’s service sector exports, suggests the impact of Manufacturing Servitisation and the generation of regional services exports by non-financial sectors is not being adequately captured.

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