East of England employment falls as downturn in activity quickens

The headline NatWest East of England PMI^® Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – signalled a quickening downturn in regional business activity as the latest reading registered 48.0 in December, down from 49.3 in November. Moreover, the latest decrease in private sector activity extended the current run of contraction to seven months as firms cited lower demand from clients. Companies also noted a deepening contraction in new business. The ongoing downturn across the region resulted in the first cutback in workforce numbers in 23 months.

December data pointed to a decrease in new business received across the East of England, thereby extending the current run of contraction to seven consecutive months. The downturn in new orders gathered pace amid a broad-based decrease across both goods producers and service providers. The drop in new work was linked to market uncertainty and inflation dampening client demand.

Overall sentiment among private sector companies across the East of England remained positive in December. Panellists attributed growth prospects to greater investment planned for the year ahead and mentions of new projects in the pipeline. That said, the degree of confidence weakened from November’s seven-month high, primarily due to a loss in confidence across the service sector. Moreover, growth expectations across the East of England were below the historical average and weaker than those seen at the UK level.

Private sector employment in the East of England fell in December, thereby ending a run of uninterrupted growth since January 2021. Adjusted for seasonality, the respective index indicated a mild round of job cuts, as modest growth in workforce numbers across the service sector was offset by a sharp decline at goods producers. Firms mentioned that a drop in demand and efforts to reduce costs resulted in the non-replacement of leavers.

Similarly, job cuts were also seen at a national level, marking the first decrease in 22 months.

Adjusted for seasonal influences, the Outstanding Business Index posted below the 50.0 neutral value for the eighth month in a row in December. The rate of reduction quickened to the fastest since last September and was solid overall. A number of firms noted that shorter delivery times and a drop in demand allowed them to work through outstanding business.

December data revealed a sharp rise in costs faced by private sector companies in the East of England, with the latest increase again stronger than the historical overage. Higher utility bills, general inflation and rising wages were behind the hike in input prices. That said, the overall rate of inflation eased to a 21-month low.

Of the 12 monitored regions, only the North West saw a slower rise in average cost burdens than the East of England.

Selling prices rose for the thirtieth successive month across the East of England in December. The rate of inflation was slightly weaker than that seen in November, but still historically elevated.

Only the North West recorded a weaker rate of charge inflation than the East of England.

Rashel Chowdhury, NatWest Midlands and East Regional Board, commented:

“2022 ended with the downturn in East of England business activity deepening, as new orders fell for the seventh straight month. Furthermore, the economic slowdown and growing uncertainty about the outlook seeped into hiring decisions. Companies were reluctant to replace leavers amid reports of resignations, thus marking the first monthly reduction in employment since January 2021. Additionally, the continued depletion of backlogs will further restrain hiring as firms adjust to falling demand.

“Optimism across the region’s private sector weakened on the month, as fewer firms expected activity to rise in the coming year. Concerns regarding demand, recession risks and the cost of living crisis weighed on sentiment and indicate further challenging business conditions across the region in 2023.”