Despite Covid issues, the region still has confidence

The shop floor at Spectra's plastic bottle making factory at Halesworth,, taken before the coronavirus crisis

Businesses remained confident moving into 2021, a survey suggests - Credit: Spectra Packaging

East of England firms battling the economic effects of the coronavirus pandemic cut their workforces in November, but remain confident about the future, a survey suggests.

The headline NatWest East of England 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 – fell from 54.9 in October to 51.2 in November. 

The latest figure signalled the softest expansion in the current five-month period of growth, although the rise in business activity – albeit marginal – contrasted with a decline across the UK as a whole. Survey respondents attributed the moderation to tightening restrictions implemented to control the surge in coronavirus cases.

November data signalled broadly no change in the level of incoming new business received by private sector firms in the East of England. This ended a four-month sequence of continuous expansion. Anecdotal evidence linked the subdued trend in new work to tightened lockdown restrictions.

However, the East of England fared better than the UK as a whole in terms of new business in November.

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Private sector firms in the East of England remained confident that activity will rise over the next 12 months. The level of positive sentiment was the highest since August and in line with the long-run series average.

Respondents often mentioned hopes of greater demand and an end to the Covid-19 pandemic following promising vaccine developments.

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Output expectations also improved at the UK level during November, with sentiment in the East of England weaker than that seen across the UK as a whole.

Private sector firms in the East of England cut workforces again in November, as has been the case since March.

Respondents often attributed the latest decline to restructuring efforts following the sustained impact of Covid-19 on revenue. The rate of job shedding was identical to that seen in October and solid overall. A number of firms also reported use of the furlough scheme.

The East of England saw the joint-softest decline in workforce numbers together with the East Midlands.

With no increase in new work during November, private sector companies were able to complete existing orders.

Backlogs declined for a second month running, and at a slightly faster pace than that seen in October. The result in the East of England broadly matched that for the UK as a whole.

November data highlighted another increase in cost burdens faced by firms in the East of England. The rate of inflation eased to the slowest since June, and was softer than the long-run series average. Panel members attributed the latest increase to higher material costs amid supplier shortages and rising transportation costs.

Input costs grew at a faster pace in the region than that seen at UK level.

Selling prices set by firms in the East of England rose for the fifth successive month in November. That said, the rate of inflation softened from that seen in the previous survey period and was below the long-run series average.

While some panellists reportedly passed cost burdens onto customers, others that registered a fall mentioned efforts to stimulate higher sales volumes.

Sector data highlighted a solid increase in prices charged by manufacturers, while service providers noted only a marginal uptick.

Also published today, the latest NatWest UK Small Business PMI® survey shows a decline in small firms’ business activity for the second month running in November, with the All-Sector Small Business Activity Index registering at 47.4 (up slightly from 47.0 in October). However, news of a vaccine boosted confidence and business outlook at small firms to a ten-month high.

John Maude, NatWest Midlands & East Regional Board, said: “Companies across the East of England recorded a fifth successive monthly improvement in business activity during November, continuing the recovery from the downturn in the spring.

However, the latest rise was the softest in the current period of growth, highlighting the impact of the second national lockdown. Notably, new orders failed to rise for the first time since June, while job shedding persisted at a marked rate. Nevertheless, promising vaccine developments and hopes of the passing of Covid-19 contributed to expectations of greater output in the year ahead.

“Although the pandemic continues to pose a threat to firms in the East of England, latest restrictions place the region in Tier 2, where some businesses will at least be able to resume operations. Demand conditions must advance to continue the recovery and aid improvement in the economic health of the region. We will also watch and wait on the impact of the impending Brexit deal in the weeks ahead.”

NatWest senior economist Nick Stamenkovic said the latest monthly PMI report for the East of England painted a mixed picture for the region ahead of year-end.

“The East of England experienced higher new business than the rest of the UK in November albeit marginally,” he said.

“Although new orders stagnated last month due to the latest lockdown restrictions in England, confidence about the future has improved. Rising optimism is based on increased hopes of a pick-up in demand over the medium-term, driven by the beneficial impact of the rollout of the approved Covid-19 vaccine in coming months.

“Business confidence in the East of England moderated in November, dragged down by the second national lockdown, but remained in positive territory, unlike the first lockdown in March/April this year, which saw widespread weakness across the region.

"Judging from recent comments from UK PM Boris Johnson, it will be some time before all restrictions on business activity are lifted and demand returns towards pre-Covid levels. This suggests recent employment cutbacks will persist for some time as companies focus on containing costs.

“As the New Year beckons optimism about the future has increased across all UK regions. The main driver has been positive news on a Covid-19 vaccine."

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