The latest from the Black Country 

West Midlands Outstrips National Output Performance for a Further Month

Corin CraneNotwithstanding some apparent easing of growth momentum at a national level, the latest Lloyds Bank PMI for the West Midlands rose from 56.5 in May to a record 58.1 in June, the strongest performance across the UK. To further substantiate this, this month’s JPMorgan Global Manufacturing PMI indicated sustained solid global growth, particularly amongst developed economies and notably in the region’s key export markets of China, Germany, France and the Netherlands. This may reflect sustained, if not increasing export demand, not just for the finished products, such as in the automotive and aerospace sectors, but from the region’s specialist precision components suppliers. On balance therefore, preliminary second quarter GDP growth can be expected to be stronger than the first quarter and is forecast to reach 0.4%.

The comparative stabilisation of the pound since October last year may be having a beneficial impact on price pressures. Whilst the national headline CPI figure continued to rise in May, up to an annualised 2.7, PMI data indicates easing of still robust pressures for input prices and output charges. It is evident since March that there has been a tailing off of input prices, with the previous differential between regional and national prices rapidly eroding. Output charges are still increasing slightly stronger in the region than that nationally, but the full impact of increased input costs appears to have been continued to be deferred being passed on to customers.
In contrast, the sustained tightening of the regional labour market is likely to add to regional price pressures. PMI data indicates that employment demand in the region was increasing at a significantly stronger rate than that for the UK, where demand appeared largely flat. Indeed, the present period of demand growth has been sustained since December 2012 in the West Midlands. Furthermore, according to the REC Labour Market Survey for the Midlands, both permanent placements and temporary billings recorded accelerated strongly in June, with temp pay rates rising at their fastest rates for over a year. However, notwithstanding increasing pay rates, the availability of permanent and temporary workers continued to contract. 

Given the current public disagreements between the EU and UK negotiators over citizen rights, this could intensify future labour market pressures, and unless resolved either through the negotiations or by sourcing new sources, such as through enhancements to the domestic skills base, could seriously constrain medium-term prospects. Indeed, if Brexit negotiations focus upon larger sectors, such as finance, aerospace and automotive, it might risk ignoring some of the more esoteric industries that rely on ease of access to the Single Market and Customs Union. For example, it is estimated that well over three-quarters of HGV transport movements between the UK and EU is by continentally-owned vehicles, and any significant extension to roundtrip journey times as a result of new customs formalities and regulations could considerably impair the capacity of the region to export to the EU.

Notwithstanding future concerns over the ultimate direction of Brexit negotiations, the level of new business orders recorded in June underscores the vibrancy of the regional economy, with the strength of new business orders being a significant factor contributing to the strength of the overall PMI. This notion was further ratified in the latest Quarterly Economic Survey undertaken by the Black Country Chamber of Commerce, with businesses indicating a 9% growth in orders on the previous quarter. Moreover, the level of future business orders indicates that the current growth period should extend well into the second half of the year, in the absence of any significant external shocks.

Corin Crane, Chief Executive of the Black Country Chamber of Commerce, commented: “The continued and growing pressure on local labour markets highlights the need for skills programmes to enhance the skills base, especially with the Brexit process potentially reducing access to skills for businesses further. Nevertheless, the strong performance in the Midlands reflected in the latest figures is welcome, and a positive sign for near-term performance in the region.”

Last modified on Monday, 04 September 2017 16:22

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