Steve Elsom of Lloyds TSB

THE level of business activity in the East of England has shown a marked increase since the start of 2012, according to the latest edition of a major monthly survey.

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The pace of job creation has also quickened, with firms taking on staff in response to strengthening demand, while cost inflation and output prices both eased last month, the Lloyds TSB East of England PMI report for January reveals.

The headline Business Activity Index, which measures the combined output of the region’s manufacturing and service sectors, rose to 55.0 from 54.3 in December.

Although the increase was slightly weaker than the average for the UK as a whole, with service providers recording stronger activity growth than manufacturing firms, it was still the fastest increase recorded in the region since April last year.

New orders grew for the third successive month, largely due to increases within the service sector, and increasing workloads resulted in some firms reporting capacity pressure so that the level of outstanding business stabilised following a significant reduction in backlogs the previous month.

Increased demand also contributed to a further rise in employment in the region, with the rate of job creation representing the fastest growth since last September, slightly stronger than that seen across the UK economy as a whole.

Meanwhile, the rate of input cost inflation slowed at the start of 2012 to its weakest level in two-and-a-half years, and companies lowered their output prices for the second month running.

Steve Elsom, area director for Lloyds TSB Commercial in East Anglia, said: “The latest PMI survey pointed to a positive start to the year for the private sector in the East of England, suggesting that a rebound from the economic weakness seen in the last quarter of 2011 is on the cards.

“However, this is dependent on these results being built on in the coming months. Another welcome sign was that cost inflation slowed, and was much weaker than that seen in the early part of 2011, which will alleviate some of the pressure on firms’ margins.”

In a separate report also published today, the CBI employers’ organisation forecasts that growth will restart in 2012 warns but that high levels of uncertainty around the economic outlook, mainly driven by the situation in the euro area, mean growth will remain subdued, particularly in the first half of the year.

The CBI expects 0.9% GDP growth in 2012, a little down from its November forecast of 1.2%, mainly reflecting the impact from the GDP contraction in the fourth quarter of last year. Modest growth of 2.0% is predicted in 2013.

Quarter-on-quarter growth will remain fragile in the first two quarters of this year (0.2%, 0.2%), improving modestly in the second half of the year (0.6%, 0.5%), as inflationary pressures ease, says the CBI.

CPI inflation will fall towards target levels (2.2%) in the fourth quarter of 2012, and will remain close to Bank of England’s 2.0% target throughout 2013. This will relieve some of the pressure on household incomes, with consumer spending picking up slightly in the second half of this year.

But households will remain cautious because of modest wage growth and continuing high unemployment, which is likely to peak at 2.9 million in the first quarter of 2013.

Net trade and business investment will continue to provide the most positive contributions to growth, with exports growth of 4.3% and 6.4% expected in 2012 and 2013 respectively. Total business investment of 4.3% is forecast for 2012 and 5.0% for next year.

Ian McCafferty, the CBI’s chief economic adviser, said: “After a particularly difficult autumn which saw a contraction in growth in the fourth quarter, recent business survey data in manufacturing and professional services, has been more encouraging with an uptick in activity and improved business sentiment.

“While significant risks in the euro area remain, the ECB’s decision to inject more liquidity into the system has reduced the chance of a banking crisis.

“There are also tentative signs of a stabilisation in economic activity in the ‘core’ countries which account for a large proportion of UK exports.”