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Business confidence in the North East is amongst the lowest in the UK

Business Confidence levels in North East England are amongst the lowest in the UK, according to the latest ICAEW Business Confidence Monitor (BCM)™. The region’s Q4 score of -18.3 is well below the UK Q4 average of -12.3 (and considerably down on the region’s Q4 2017 score of -6.5); it is the region’s lowest score since Q2 2009.

Sales and profits slow

Business across the region report that domestic sales are slowing, from 3.6% last year to 2.6% in the year up to Q4 2018. And although export sales are slowing more gradually, at 2.3% (compared to 2.5% a year ago), they remain below the UK national average. This fall in sales probably explains a rise in the number of companies operating below capacity, up from 52% last year to 59% in Q4 2018.

Businesses are also struggling to achieve substantial increases in selling prices, which are rising more slowly than input price inflation and total wages, at 1.6%. The combination of these two factors may partly explain the weakening of profits growth to 2.6% in Q4 2018, significantly below the 4.3% expansion achieved a year earlier.

Investment down

Slower sales and profits growth are likely to be constraining the rates of investment within the region. A year ago, capital investment was increasing by 4.2%, compared to 2.3% in the year to Q4 2018. Staff development budgets are rising even more modestly, at just 1.0%, following growth of 2.9% in Q4 2017. Looking ahead, expectations are similarly subdued, with Research & Development budgets projected to contract by -0.2% over the next 12 months.

Skills shortage a cause for concern

This quarter’s weakened confidence may also be linked to the wide range of challenges that businesses face, particularly in terms of their ability to find staff. Concerns over the availability of management and non-management skills, and staff turnover are all exhibiting upward trends as well as all being above their respective UK national averages.

James Callaghan, Regional Director Northern, Yorkshire and Humber, said “Whilst last quarter’s score was only marginally positive, to see confidence levels in the North East so firmly in negative territory – and for the region to be one of the four lowest in the UK overall – is concerning. Whether this is a blip due to pre-Brexit uncertainty, or if it is indicative of a longer-term decline in confidence, remains to be seen.”

For more information: www.icaew.com/bcm

Notes:

  1. There are over 1.7m chartered accountants around the world - talented, ethical and committed professionals who use their expertise to ensure we have a successful and sustainable future.

    Over 150,000 of these are ICAEW Chartered Accountants. We train, develop and support each one of them so that they have the knowledge and values to help build local and global economies that are sustainable, accountable and fair.

    We’ve been at the heart of the accountancy profession since we were founded in 1880 to ensure trust in business. We share our knowledge and insight with governments, regulators and business leaders worldwide as we believe accountancy is a force for positive economic change across the world.

    Over 4,000 ICAEW members and ACA students work in business and the finance profession across the North East of England, Teesside and Cumbria.
  2. ICAEW is a founder member of Chartered Accountants Worldwide and the Global Accounting Alliance.
  3. The Business Confidence Monitor (BCM) survey began 2003.
  4. 1,000 Chartered Accountants – including 70 in the North East – responded to a telephone survey from 23 July – 19 October 2018. Businesses were categorised in terms of size (no. of employees), region and industry sector. Regional classification used was ONS Government Office Regions.
  5. The BCM survey covers over 1% of economic activity both for the UK as a whole and for different UK regions. This assures our data captures accurately the mood of UK senior business professionals.
  6. Business Confidence Index methodology – The Business Confidence Index is calculated from the responses to the following:
    “Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?”

    A score was applied to each response as shown below, and an average score calculated. 
    Variable Score
    Much more confident +100
    Slightly more confident +50
    As confident 0
    Slightly less confident -50
    Much less confident -100
    Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.
  7. Oxford Economics one of the world’s foremost advisory firms, providing analysis on 200 countries, 100 industries and 3,000 cities. Their analytical tools provide an unparalleled ability to forecast economic trends and their economic, social and business impact. Headquartered in Oxford, England, with regional centres in London, New York, and Singapore and offices around the world, they employ one of the world’s largest teams of macroeconomists and thought leadership specialists.