West Midlands’ economy continues to feel economic pain

Up and down arrowsThe prospects for the regional economy continue to worsen in the short term as new data further emphasises a deepening contraction of economic activity.

The CIPS/Markit Purchasing Managers Indices (PMI) for the West Midlands were released on 10 Novemember. The PMI is an important indicator of the short term economic prospects and it is widely used to inform policy

The PMI pointed to an acceleration of the downturn in October. The key headlines are:

  • Business activity fell for the 5th consecutive month. The West Midlands fell at a considerably faster rate than the UK average.
  • The West Midlands saw the steepest fall in new business activity of any UK region in October. The PMI (any figure below 50 represents a fall) in October was just 32.6, down from 36.7 in September.
  • Companies sought to minimise excess capacity through an accelerated level of job cutting.
  • However, lower energy costs have contributed to a slowdown in input price inflation and this has fed through into slower increases in output prices.

Claimant count figures released today (in Labour Market Statistics monthly data for November) reaffirm the impact that the downturn is having on the labour market. The figures show an increase of around 1,600 in October which, while not as high as the increase in September, it does increase the total number of claimants so far this year to nearly 18,500.

The Bank of England released its Quarterly Inflation Report this morning and their outlook for the economy is one of further falls in GDP before signs of recovery towards the end of 2009.

A tightening of the availability of money and credit, slower income growth and a fall in the value of assets will all contribute to a further fall in demand following the estimated 0.5% fall in quarter 3.

However, the impact of fiscal stimulus, lower interest rates, a loosening of credit supply, lower energy and food prices and a lower value of sterling will start to feed through into a recovery of GDP toward the latter part of 2009.

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One Response

  1. […] West Midlands’ economy continues to feel economic pain « Observations – Ouch: “The West Midlands saw the steepest fall in new business activity of any UK region in October. “ […]

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