Member Article

North East starts 2016 with ‘stuttering performance’ as output growth slows to near-stagnation

Private sector firms in the North East reported a slower rise in activity during January, with reduction in incoming new business a worry according to the Lloyds Bank North East Business Activity Index.

The Lloyds Index, which measures the combined output of the region’s manufacturing and service sectors, ranked at a 50.7 rating in January. Down from 53.6 in December, the latest reading pointed to a rate of growth below the survey’s historical average.

Leigh Taylor, Lloyds’ regional director for SME Banking in the North East, believes the region has started the year with ‘a stuttering performance’.

Output growth slows

Backlogs of work were depleted at a marked pace, pointing to persistent spare capacity at firms in the region. Correspondingly, staffing levels were cut at the fastest rate in over three years.

New business placed with North East private sector firms fell for the second month running in January. The rate of decline was little-changed from December’s modest pace. Panellists commented that demand conditions remained generally subdued.

Employment in the North East private sector decreased for the second time in the past three months during January. Furthermore, the rate of job cutting was the most marked in 39 months. Sector data showed that job cuts were centred on manufacturers, with service providers reporting a modest rise in workforce numbers.

Job shedding reflected ongoing spare capacity among the region’s private sector companies. This was signalled by a further sharp drop in backlogs of work, with panellists commenting that a lack of incoming new orders had allowed them to focus resources on existing workloads. Input and output prices

Input prices in the North East private sector fell for a second consecutive month in January. The drop was primarily driven by lower prices for a number of key commodities and, correspondingly, centred on the manufacturing sector.

Output prices fell for the second month running, with the rate of decline unchanged on December’s modest pace. Panellists indicated that competitive pressures had weighed on their pricing power.

Leigh Taylor, Lloyds regional director for SME Banking in the North East said: “The North East saw a stuttering performance at the start of 2016, with output growth slowing to near-stagnation amid a further drop in new orders.

“Moreover, spare capacity led firms to cut employment at the fastest rate in over three years. On a positive note there was a further fall in the cost of raw materials, primarily benefitting manufacturers, but prices charged were also cut as firms continued to face strong competitive pressures.”

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