According to the latest Lloyds Bank regional PMI for October released (Monday November 11):
Download the full report including graphs here: PMI stats October 2016
Performance across the English regions was firm at the beginning of the Fourth Quarter, with business activity accelerating further. The West Midlands region was again amongst the leading performers, with economic activity appearing to expand at a faster rate than that achieved nationally.
The impetus for this strength of business activity was attributed to gains in international attractiveness with the depreciation of pound seen as the principal factor for this, as demand for British products and services firmed. Nevertheless, the weaker trading range of the currency since the end of June was seen as the main cause of the tightening of input process, which has now recorded the largest increase in average price levels in five and a half years.
In the West Midlands private sector performance increased further in October, with output and new business growth rates speeding up. Enterprises in the region also boosted employment levels, notwithstanding work backlogs remaining at the same level since September. Although levels of private sector employment increased again, with 13% of all companies indicating that they had added to payrolls, this was largely the result of services providers increasing staff establishment as there was a marginal decline in manufacturing payrolls. These trends were replicated in the East Midlands, where labour demand month-on-month recorded the stronger increase in England. Tightening labour market conditions across the Midlands have yet to be seen to be contributing to price pressures.
Overall economic growth was 0.5% in the third quarter, and although this was at a weaker rate than that achieved in the second, performance was much stronger than many commentators forecast as a result of the Brexit impact. Indeed, Office of National Statistics (ONS) data to date suggests that the impact of Brexit has been muted, although the rate of recovery over the past few years has been disappointing, with productivity growth particularly worrying. The main driver of growth was the services sector, with the recent positive growth trend bringing GDP to 8.2% above the pre-downturn level. However, official data continues to highlight the relatively slow recovery in other output sectors. In terms of productivity, recorded output per hour worked grew 0.6% in the third quarter, an increase on the previous quarter with output per hour exceeding 2008 levels for the first time. Official estimates of comparative productivity, for 2015, suggests that the UK remains 18 percentage points lower than that achieve on average by G7 economies.
The pound's recent recovery since the election of President Trump appears to be a temporary boost, and unlikely to offset recent upward price pressures. With both pound and US dollar now heavily influenced by market perceptions of political impacts, relative currency differentials are likely to be volatile at least until the Presidential inauguration and the timing of the eventual activation of Article 50 to trigger Brexit.
The future direction of pound and indeed regional growth prospects will obviously be heavily determined by the Chancellor’s Autumn Statement (23 November) and whether a serious commitment to rebalancing the economy through a comprehensive industrial strategy is demonstrated.
Professor Julian Beer, Deputy Vice-Chancellor at Birmingham City University, said: “Today’s regional PMI demonstrates further both the resilience of the regional economy and the impact of Sterling’s depreciation. Although Sterling has firmed in recent days, the current trading range for the currency places the region at an advantageous position going forward into next year.