Output growth loses momentum at the end of 2014

12 January 2015

  • Recovery slows across England and Wales
  • Private sector employment growth moderates in December
  • Lower oil prices contribute to weaker cost inflation

Private sector growth slowed across England and Wales in December, according to the latest Lloyds Bank Regional Purchasing Managers’ Index® (PMI®), as survey respondents cited the uncertain global economic outlook as a concern at the end of the year.

Employment growth also slowed at the end of 2014, but cost pressures weakened, largely reflecting lower fuel bills and falling commodity prices.

The index measuring overall business activity across England fell from 57.7 in November to 55.9 in December, but remained above the 50.0 no-change threshold. The latest reading was higher than the long-run survey average (54.1), but still pointed to the slowest pace of output growth for a year-and-a-half.

A solid rise in business activity was recorded in all nine English regions monitored by the survey. Only the East Midlands experienced a stronger rate of growth than in November, while the North West (54.1) reported the slowest increase in business activity. Companies in the North East reported the sharpest rise in output (56.9), followed by those based in London (56.7).

The index measuring business activity across Wales fell to 56.9 in December, from 59.7 in November. While this still indicates a robust expansion of private sector output, the latest reading was the lowest for three months.

A number of regions reported a slowdown in new business growth during December, with Yorkshire & Humber (54.3, down from 59.0) and the East of England (56.6, down from 60.5) recording the biggest declines since the previous month. Survey respondents suggested that concerns about the economic outlook had weighed on client spending at the end of the year.

Meanwhile, firms continued to create new jobs across England and Wales, but the pace of employment growth had eased. The East of England (56.7) recorded the sharpest rise in staffing levels, while the slowest upturn was in the North East (51.4).

Input costs for firms remained subdued in December, helped by lower fuel bills and reduced raw material prices. London was the main exception to the overall trend, with input costs rising at the fastest pace since July, which some firms linked to higher salary payments.

Tim Hinton, Managing Director, Mid Markets & SME Banking, Lloyds Banking Group, said: “Firms across England and Wales remain in expansion mode, but there are signs that the recovery slipped down a gear at the end of 2014. Global economic uncertainty is affecting firms’ confidence to invest and ability to grow, but falling oil prices may start to ease cost pressures for companies and help support consumer spending in the months ahead.”

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