The headline NatWest Yorkshire & Humber 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 – dipped to 50.6 in May, from 52.5 in April, signalling a growth slowdown midway through the second quarter.
Of the 12 monitored parts of the UK, only Wales recorded a worse monthly performance in business activity, with Yorkshire & Humber growth lagging behind the UK average by a considerable margin.
The volume of incoming new business dipped during May, marking the first contraction in demand since January. Weaker conditions in the markets key customers operate in reportedly weighed on new order inflows.
Of the 12 monitored parts of the UK, Yorkshire & Humber was one of three where new business fell. Although the drop in demand across the region was marginal, it was stronger than those seen elsewhere.
Private sector businesses in Yorkshire & Humber remained strongly optimistic towards the 12-month outlook for activity in May. Increased investment, new product launches and entry into new markets, as well as hopes of stronger sales performances underpinned growth forecasts. That said, the level of confidence dipped to a five-month low.
The level of employment across the Yorkshire & Humber private sector rose again in May, marking a fifth consecutive expansion in staffing capacity across the region. According to surveyed firms, extra workers were hired to fill vacancies, reduce the strain on existing staff and prepare for future growth. The rate of jobs growth slowed and was modest, but broadly matched that seen for the UK as a whole.
For a third month running, private sector companies across Yorkshire & Humber recorded a drop in the volume of outstanding work during May. The pace of decline was solid and unchanged from April’s four-month record. According to survey respondents, the catch-up of incomplete orders was enabled by falling intakes of new business.
Another sharp increase in operating expenses was registered by surveyed companies in Yorkshire & Humber midway through the second quarter, although the rate of inflation eased to a 28-month low.
That being said, trends diverged significantly by sector as a fall in input prices at manufacturers compared with a softer, but still steep rise in costs at service providers. While lower prices for raw materials and energy helped bring factory input costs down, wage pressures were behind the sharp rise in service sector expenses.
The seasonally adjusted Prices Charged Index remained well above the no-change mark of 50.0 in May, signalling a further sharp rise in prices charged for goods and services across Yorkshire & Humber. Firms that raised their fees commented on efforts to pass on higher costs to clients.
That said, selling prices were raised to the weakest extent since February 2021 as companies, particularly in the manufacturing sector, offered more competitive prices amid falls in their costs and difficulty securing new work.
Malcolm Buchanan, chair of the NatWest North Regional Board, said: “The NatWest Regional PMI data suggests Yorkshire & Humber faced a challenging period during May. Not only did growth slow to a marginal pace, but compared to its peers, this part of the UK was one of the worst performers. The region saw demand conditions weaken over the course of the month, affecting the rate of growth and impacting business confidence in some sectors.
“The latest report does offer grounds for optimism. Encouragement can be gleaned from sustained employment growth, which suggests that companies are filling vacancies and preparing themselves for future opportunities. Falling inflationary pressures also bodes well, and we’ve already seen reports of firms making their prices more competitive.
“That said, underlying data shows that price pressures are driven by services, with firms in these industries reporting higher wage costs. Therefore, the risk of inflation staying stubborn remains elevated for the time being.”
