New orders weaken but inflationary pressures start to cool

Business activity fell further in the region in July as new orders fell although cost inflation slowed and private firms in the region are continuing to recruit staff helped by stronger expectations, according to a key survey of purchasing managers. The NatWest East of England PMI business activity index fell in July from 47.9 to 46.8, below the 50 -level which denotes no change. Weak client appetite, market uncertainty and increased delivery times all contributed to the downturn in the region, which contrasted with a modest rise in output and orders nationally. But expectations across the region’s private firms strengthened from a recent low helped by continued pandemic-related recovery, increased investment and new product launches. Staffing levels across private sector firms in the East rose for the 18th month running and hiring activity was the third-strongest of any region in the country behind only London and the South East. The rate of input price inflation faced by firms in the region 'softened notably' from June, to show the weakest rise in average cost burdens in ten months. But the survey said upward pressures on operating expenses remained strong, driven by raw material, transport and energy costs. The pace of output price inflation also slowed. John Maude, NatWest Midlands & East Regional Board, said: "… Latest survey data …highlighted cooling inflationary pressures, with average prices charged for goods and services rising at a softer rate. Nonetheless, price increases still remained historically high. …While the second half of the year started on a weak footing, we did see business confidence strengthen to a three-month high.”

Separately, hiring intentions among UK businesses remain strong despite a turbulent outlook across output and inflation, according to a business trends report from BDO. The BDO employment index soared to 114.79 in July, its highest level since January 2019, up 0.23 points on June. In line with the decline in economic activity, BDO’s optimism index fell 0.30 points to 101.53, its lowest point since April 2021. Peter Harrup, partner and head of East Anglia at BDO said: “Despite the current hiring activity, we’re likely to see demand for labour and the employment index decline later in the year, with employers devoting their resources to managing inflation, interest rate rises, and ever-growing energy costs.”