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Business confidence in the North East falls to lowest level in a year

Business confidence in North East England is now firmly back in negative territory, a survey by chartered accountancy body ICAEW has found. ICAEW’s Business Confidence Monitor for the North East suggests that weak domestic sales, exports and sales growth have dented confidence among businesses in the North East

In common with the rest of the UK, the decline in confidence in the region is likely to be linked with ongoing Brexit and political uncertainty.

The dramatic fall in confidence this quarter may also partly be explained by slower expansion in sales. Confidence in the North East is now at the lowest level since Q4 2018, having only just been below zero in recent quarters.

James Callaghan, Regional Director Northern, Yorkshire and Humber, said: “It is always concerning to see confidence drop so significantly from one quarter to another, but while there is no doubt that businesses in the North East have major concerns, this picture is reflected nationally. we hope that the new government will ease the strain on businesses and bring some much-needed stability to the economy.”

Sales and exports slowing

Domestic sales growth of 1.5% is down from 2.6% last year. Weaker still is export performance, expanding by just 0.7%, which is the region’s lowest rate since Q2 2013.

These tough sales conditions mean that many companies are struggling to achieve any significant gains in selling prices, which are rising by just 0.6% in the year to Q4 2019. They also continue to trail cost increases for companies in the region. Input price inflation now stands at 2.3% and total wages are up by 2.4% over the past 12 months. The overall impact of this is that profits growth (2.2%) is slower than a year ago (2.6%).

Decline in demand and late payments cause growing concern.

Businesses in the North East have also expressed growing concerns regarding customer demand and late payments.

Nearly a half (47%) of businesses, compared to over a third (36%) a year ago, said that customer demand was a growing concern for them. This is one of the highest levels of any region in the UK. Late payments are also a growing source of difficulty for 21% of companies, slightly higher than the UK national average of 18%.

The proportion of businesses in the region that cite access to capital as a growing challenge is also up from a year ago (it now stands at 17%, compared to 13% in Q4 2018).

Investment increases despite concerns

Despite slowing sales and mounting challenges, businesses in the region are continuing to increase their investment spending; capital investment is rising by 3.2% in Q4 2019, the fastest rise anywhere in the UK.

Research and development budgets (2.3%) and staff development spending (1.9%) are both increasing faster than their respective national averages.

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