The Midlands Economic Resilience

Birmingham City University and the Midlands Economic Forum have commented on new statistics indicating the Midlands economy’s strength and resilience, post-Brexit.

Today’s Regional PMI (Purchasing Managers’ Index) release by Lloyds Banking Group and IHS Markit, confirms the sharp rebound apparent in national data.

All nine English regions returned to growth according to PMI data released today, with the West Midlands recording 52.4 in August (compared to 47.4 in July) and the East Midlands 54.2 (compared to 50.9 in July).

In light of the sharp rebound this month, both regional and national PMI data indicates that any contraction in the third quarter will be more modest than initially feared.

In the West Midlands increased business activity was attributed to rising incoming new work, with outstanding business falling, albeit it at a slower rate and employment levels more or less flat.

As a result of the depreciation of Sterling, prices of both inputs and outputs continued to rise steeply. Although performance improved substantially throughout the Midlands, it was slightly more subdued than that recorded elsewhere, notably the North West (55.7), the South West (55.5) and the South East (54.3). Moreover, regional output growth was largely driven by services, with manufacturers reporting easing output.

Professor Julian Beer, Deputy Vice-Chancellor at Birmingham City University, said: “The earlier national PMI data for August, recorded a robust recovery whereas the immediate post-Brexit July data highlighted a severe downturn in potential activity, volatility that suggests the Brexit shock is still working its way through the economy. As a result, it is premature to say there is a clear post-Brexit trend evident. Nevertheless, today’s regional PMIs underline the strength and resilience of the Midlands economy, both East and West.

“Given the region’s evident strengths in manufacturing and related-services, in what is likely to be an extended Brexit process, it is essential that the businesses and institutions of the Midlands – local government, universities and above all companies – provide the platform to successfully exploit these strengths and the opportunities that will undoubtedly become available, both within the EU and the non-EU.”

Last week’s ONS Index of Manufacturing showed a month-on-month contraction of 0.9% in July, which would be consistent with that month’s negative national manufacturing PMI. If this month’s PMI data are reflected in national statistics, a similarly constrained performance of manufacturing output might be expected.

Professor Paul Forrest, Head of Research at Midlands Economic Forum, said: “The emphasis on exports in the Midlands economy augurs well for future growth in light of the sharp depreciation in Sterling.

“It is clear that whilst the currency movements since the referendum should ultimately stimulate regional exports, the data suggests that we are witnessing a sharp rise in inflation, and in the West Midlands price pressures evidently increased at a more firmer rate than that recorded across the UK as a whole.

“The Midlands is entering the second half of this year from a position of strength, having seen robust expansion in the key automotive, aerospace, wholesale and logistics sectors during Q2. As can be seen from the previous PMI figures, the region as a whole enjoyed an above-trend period of expansion during the first half of 2016.”

The most recent IHS Markit jobs report shows that recruitment in the Midlands resumed a growth trajectory after July’s lull in hiring. Appointments into permanent placements returned to growth and the rate of expansion was sharper than that seen nationally. In line with last month’s picture, temporary employment demand in the region grew particularly strongly and remains above the national average, suggesting that decisions continue to be deferred in light of the ongoing uncertainty.

Shifts in monetary policy by the Bank of England appear to be having an effect on sentiment, as are suggestions that the government may adopt fiscal policies to stimulate the economy. All eyes are likely to be on the Autumn Statement for any evidence that the government is fleshing out proposals for a broader industrial strategy.