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Mixed picture of slowing growth and rising employment in region

PUBLISHED: 08:28 15 March 2011 | UPDATED: 20:06 15 March 2011

A mixed picture of slowing growth but rising employment in the East of England last month is revealed in a survey of trends.

The Lloyds TSB East of England Purchasing Managers’ Index (PMI) report for February showed activity in the region’s private sector continued to rise, but at a slower pace than previously.

Experts put last month’s down to January’s “snow rebound” which resulted in a better-than-expected January.

Despite the slower growth, the rate of job creation quickened as workloads increased.

However, input cost inflation remained close to January’s PMI record, with higher prices partly passed through to clients.

The headline seasonally adjusted Lloyds TSB East of England Business Activity Index, which measures the combined output of the region’s manufacturing and service sectors, was 52.7 in February, down from 55.6, signalling that business activity grew for the 22nd month in a row.

The increase in output was solid, but slower than that seen in the previous month, and weaker than the UK average. There was also a split in fortunes, as manufacturers saw production increase, while service providers registered falling activity, the survey found.

New business increased again in February, with strengthening demand reported from both domestic and external markets. However, new orders rose at a weaker pace than in January.

Outstanding business rose again in February, reflecting increased new orders and, in some cases, raw material shortages.

The rate of accumulation in the East of England remained only marginal, but contrasted with a decline in backlogs of work nationally.

As new business expanded, firms took on extra staff, creating the fastest increase in employment since April 2010.

Both the manufacturing and services sectors recorded increased staffing levels, with manufacturers seeing the sharper rise.

But input cost inflation remained high in February, putting a dampener on the jobs boost. It slowed only fractionally from the series record high seen in January.

Increased commodity prices were the key factor behind the rise, especially of fuel and steel. Manufacturers posted faster input price inflation than their service sector counterparts, reflecting their greater direct exposure to changes in the cost of raw materials,

Output prices increased at a marked pace during the month as East of England firms passed on a proportion of their higher input costs to their clients and the rate of inflation was the steepest since last October.

As with input prices, manufacturing firms raised charges at a faster pace than services companies.

Commenting on the Lloyds TSB East of England PMI survey, Steve Elsom, area director for Lloyds TSB Commercial in East Anglia, said: “The slowdown in activity growth in the East of England during February should not cause too much alarm, as the previous month’s output was boosted by a ‘snow rebound’.

“A further acceleration of job creation suggests a positive outlook for the region as firms expect new business growth to continue. The substantial rate of input cost inflation, however, points to a sustained squeeze on margins on the horizon.”

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