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Business activity growth eases to three-and-a-half year low in April

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The start of the second quarter of 2016 saw private sector activity growth slow to the weakest in the current 42-month sequence of expansion. New business rose at a moderate rate that was broadly unchanged from March’s three-month low.

As a result, firms cut back on their payroll numbers for the second consecutive month. On the price front, cost inflation re-emerged for the first time in nine months, while prices charged rose at the sharpest rate in over a year.

The headline Lloyds Bank Yorkshire & Humber Business Activity Index – a seasonally adjusted index that measures the combined output of the region’s manufacturing and service sectors – posted 50.8 in April, down from 52.3 in March, signalling a weaker expansion in business activity in the region.

In fact, the latest reading was the lowest in three-and-a-half years and below the UK average. Firms linked softer activity growth to subdued demand and challenging economic conditions.

New orders increased at a rate that was little-changed from March’s three-month low in April. Moreover, the pace of expansion was weaker than the long-run series trend and softer than the UK average. Some panellists mentioned uncertainty surrounding the EU referendum weighing on new business growth.

Private sector firms were cautious towards their hiring policies, with payroll numbers decreasing for the second straight month. According to anecdotal evidence, the implementation of the National Living Wage, efficiency improvements and weak new order growth were all factors behind the reduction in staff numbers. This contrasted with the UK as a whole, where employment rose, albeit at the weakest rate since August 2013.

Resulting from subdued demand, pressure on capacity was reduced and volumes of unfinished work were depleted further. Moreover, the rate of decline was the sharpest in two years and quicker than the UK average.

Due to the implementation of the National Living Wage and higher fuel costs, input prices rose in April. Subsequently, firms increased their charges and at the quickest rate since March 2015.

Commenting on the Lloyds Bank Yorkshire & Humber PMI survey, Leigh Taylor, regional director for SME Banking in the North East and Yorkshire, Lloyds Bank Commercial Banking, said: “The Yorkshire & Humber private sector economy improved at a slower rate at the start of the second quarter. Business activity growth eased to its weakest in over three-and-a-half years, while new orders increased at a moderate rate that was broadly unchanged from March’s three-month low.

“As a result, firms cut back on staff numbers, with panellists mentioning uncertainty as a factor weighing on business confidence. Meanwhile, the implementation of the National Living Wage and higher fuel prices both led to greater cost pressures, which encouraged companies to increase their charges further.”

Leigh Taylor, regional director for SME Banking in the North East and Yorkshire, Lloyds Bank Commercial Banking

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