University News Last updated 10 October 2016
Birmingham City University and the Midlands Economic Forum have welcomed new figures showing the region posted the strongest growth in the country last month.
The West Midlands economy was the strongest performer in September, alongside Yorkshire and Humber, posting 55.6 in the latest Purchasing Managers’ Index (PMI) outperforming the national figures. While the East Midlands also recorded firm growth.
At a national level the strength of recover in both August and September, following sharp contraction in July after the vote to leave the European Union, indicates that while there may be some moderation in quarter three GDP growth, fears of recession may be overblown.
Despite the resurgence shown in the regional PMIs and similar readings in the National Manufacturing, Construction and Services PMIs, the volatility and continued erosion of Sterling continues to cast doubt on medium-term growth prospects.
Download PDF document including graphs of the latest figures
The ultimate impact of recent Sterling performance will remain difficult to discern until current volatility settles into a new trading range.
However already the international competitiveness provided by the depreciation since July has contributed to the acceleration in the Midlands of new business orders.
This is partly down to reviving export orders, which has led to some build-up of work backlogs and tightening labour market conditions. Overall this performance has been broadly based across both the manufacturing and services sectors.
The downside of Sterling’s fall has been, given the UK’s import dependency, a substantial tightening of price pressures. This is most notable for inputs, many of which are imported, but also because these costs are starting to be passed on to consumers with output prices firming.
There also appears to be variation between different sectors and geographic areas.
With its apparent and more immediate dependency on imports, manufacturing prices are said to have been increasing at a greater pace than those in the services sector.
Additionally, with regional distinctiveness of industry sector concentrations, there appears to be a widening of price differentials regionally.
In the case of the West Midlands, given heavy bias towards manufacturing and related services, inflation benefitted from the global weakness of commodity prices earlier in the year.
However this has been partially offset by the currency depreciation and West Midlands input and out prices have risen at a faster rate than that nationally since June.
Given the region’s significant role within global value-added supply chains the impact is probably more rapid than in other more domestically orientated ones.
Professor Julian Beer, Deputy Vice-Chancellor at Birmingham City University, said: “The turnaround since the immediate post-referendum gloom of June, in both economic performance and potential prospects has been remarkable.
“Regionally, both the West and East Midlands have been recording vigorous growth, according to the latest PMI data. Prospects for the onset of a recession in the third quarter now appear to be largely dissipated.
“However, more than ever the medium-term economic outlook is going to be heavily influenced by political facts, both domestic and international.