NatWest PMI shows North East private sector in deep downturn in May

North East private sector output remained in a deep downturn in May, according to the latest regional PMI data from NatWest, with both output and employment falling sharply following record contractions in April.

The headline NatWest North East Business Activity Index had a reading of 28.9 in May – well below the 50.0 threshold that separates growth from contraction.

The NatWest regional PMI measures changes in the combined output of the North East’s manufacturing and services sectors month-on-month.

The latest reading was an improvement on April’s record low 10.7 score, as the easing of lockdown restrictions saw more firms resume operations.

The decline in activity in the region continued to be led by the services sector.

The fall in new business at firms was slower than in April but still fell to historic lows, similar to the nadir of the financial crisis of 2008/9.

For the first time in three months, firms in the North East reported optimism towards the outlook for activity over the coming year.

The Future Activity Index climbed sharply from a record low in April and pointed to a higher degree of business confidence than seen across the UK as a whole.

North East firms also reported a sharp drop in employment in May. Though slower than in April, the rate of job losses remained faster than that seen across the UK.

This was despite widespread uptake of the Coronavirus Job Retention Scheme (CJRS). Underlying data showed deep cuts to staff numbers across manufacturing and services, with the latter continuing to record the faster rate of decline.

The job losses seen across the region partly reflected efforts by businesses to reduce excess capacity. Orders received during May were well below the number that firms were able to complete, as evidenced by a further sharp reduction in backlogs of work.

The rate of decline in the North East was the third-fastest in the UK, slower only than those recorded in Scotland and Northern Ireland.

Fierce competition for new work also led businesses in the North East to reduce output prices in May. The data pointed to a growing number turning to discounting as a way to secure or retain business, with average charges falling to the greatest extent since May 2009.

Richard Topliss, chair of the NatWest North Regional Board, said: “With many businesses still closed for much of the month and demand severely restricted both domestically and abroad, the North East private sector – like the rest of the UK – was still firmly in a downturn in May.

“The consequences are being felt socially as firms continue to cut staff in a bid to remain viable.

“A sharp rebound in output expectations is somewhat good news as it shows firms are starting to gear up for a recovery and will likely mean fewer job losses in the coming months.”