Businesses across the North East are feeling the squeeze of growing costs, and many are turning to overdraft facilities to combat the trend.
The results of two new surveys - BDO LLP's 'rethinking the economy' and the Lloyds Bank UK Recovery Tracker - show many firms are concerned by inflationary pressures on everything from raw materials to power.
More than half of respondents to BDO's survey said they had already accounted for inflation of between 6%-10% this year, the highest since the 1990s.
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Michael Stallard, partner at BDO in the North East, said: “For months, the inflation screw has steadily been tightening for businesses in the region, as the rate has increased to record levels. Businesses have acted accordingly by factoring in higher levels of inflation this year – one of the only regions in the UK to have done so.
"Despite being prepared on paper, businesses still need to be flexible and act swiftly for the remainder of 2022 – whether that’s through additional financing, raising the price of goods or services, or working alongside lenders and suppliers to agree more beneficial agreement terms.
“With the pressures of a global pandemic lingering on, businesses in the region are having to overcome more hurdles, as significant global uncertainty and soaring costs are putting future growth ambitions under real threat in 2022. Unsurprisingly, more than a third of businesses admit that they intend to pass on those additional costs to customers.”
Finding the right employees in the next six months was cited by 25% of respondents as another key challenge for regional companies, along with 16% citing the rising cost of living - including potential customer spending power - as a difficulty. At the same time, 29% said they had made one-off payments to staff to tackle the trend.
Meanwhile, manufacturers told Lloyds they they had been disproportionately affected by the war in Ukraine - leading to the largest gap between manufacturing and service output growth in 13 years.
In March, 12 out of 14 UK sectors monitored by Lloyds reported output growth, up from 10 in February. Of these, eight saw faster month-on-month output growth, four more than last month.
The leisure and hospitality sector - boosted by a return to foreign holidays and higher city-centre footfall - showed the fastest growth of all, moving from 58.8 points to 68.5.
Real estate also grew from 60 points to 62.5 - the fastest output growth since the start of 2020.
However, manufacturers struggled to achieve higher production levels in March amid rising commodity prices. and supply chain challenges. The output of food and drink manufacturers fell to an eight-month low, from 55.5 points to 50.1.
Jeavon Lolay, head of economics and market insight at Lloyds Bank Commercial Banking, said: “The end of Covid-19 restrictions in England have given consumer-facing services businesses a boost. Tourism and recreation posted the fastest growth of any UK sector in March. However, while demand remains buoyant, unfortunately the latest wave of Covid-19 infections has caused major disruption to travel plans.
“Alongside labour market shortages, the unrelenting pressure from rising costs represents another major challenge for most UK businesses. Both service and manufacturing firms face higher inflation, in part driven by the ongoing war in Ukraine – a factor that is weighing particularly heavily on manufacturing activity.
“The Tracker shows that more businesses are raising prices, likely as a direct effort to help offset higher input costs. All eyes will be on how sustained and widespread this trend will be in the months to come.
“The Bank of England has already presided over three consecutive rate rises in recent months and faces a difficult decision next month with spiralling inflation coinciding with a less favourable outlook for growth.”
