Private sector firms in the West Midlands saw the steepest decline in new business last month compared to the rest of the UK.
The latest PMI data from NatWest shows that the decline in new work was reflective of the national trend, however the fall in business activity across the region was among the steepest recorded at UK level.
And, despite easing notably from April’s record, the rate of decline was the second-quickest in the survey history.
But the report also indicated that firms on balance were positive about the outlook for the year ahead.
Optimism was generally based on expectations that the business environment will return to normalcy in the coming months, while firms that expressed negative sentiment raised concerns about the longer-term impact of the Covid-19 pandemic on economic activity.
Firms continued to reduce employment sharply in May, following a record decline in April.
The rate of job shedding remained substantial and the second-quickest in the series history.
Anecdotal evidence suggested that redundancies in response to reduced new business inflows were a key reason for lower workforce numbers.
May data also signalled a further substantial rise in spare capacity among firms in West Midlands, as the level of outstanding work fell steeply again, despite the rate of decline easing from April.
Manufacturing and service sector firms both recorded sharp reductions in backlogs, with the former recording a steeper decline.
Input costs faced by the private sector firms in the West Midlands declined for a second straight month in May. However, the pace of decrease eased from April and was marginal overall.
The latest decrease was linked to lower prices for certain inputs such as fuel.
John Maude, NatWest Midlands & East Regional Board, said: “Ongoing measures to control the Covid-19 outbreak continued to weigh heavily on the private sector in the West Midlands, with business activity falling substantially during May, following a record contraction in April.
“Demand remained deeply impacted by restrictions on business operations and global trade weakness.
“Facing further challenging demand conditions, firms sought to cut excess capacity and consequently reduced workforce numbers in the middle of the second quarter.
“Business sentiment remained subdued in the historical context as respondents worried about the longer-term impact of the pandemic on business activity. That said, firms that anticipated a rise in output in the coming year were optimistic that the current business environment will return to normality in the months ahead.
“Deflationary pressure meanwhile remained evident during May, with costs and selling prices both falling further, albeit at slower rates.”