Businesses in the North East ended 2021 in better shape than they started it but have growing worries over inflation and energy prices, a new survey shows.
The quarterly economic survey from the North East England Chamber of Commerce found that just over half of businesses polled (52.7%) were operating at full capacity, a significant increase from the 31% reported a year earlier.
Firms were broadly positive when asked about sales and investment, but sentiment in those areas has cooled in the last quarter, and the number of businesses facing cost pressures from pay settlements and the cost of raw materials has increased significantly.
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Chamber members cited staff shortages, wage pressures and other cost increases, supply chain issues and freight costs as their main challenges.
Chamber president Lesley Moody said: “As we identified last quarter, the headline figures are undermined by some serious concerns on the horizon for our businesses.
“Export performance is worryingly flat, with firms identifying supply chain issues, increased costs and the continued disruption due to Brexit as the leading causes of this. This quarter also brings more worrying data on businesses’ cashflow.
“There is a lot of media discussion about an impending ‘cost of living crisis’. We must not lose sight of the fact that we are also facing a ‘cost of doing business’ crisis.
“When you add in the continuing concerns regarding staff shortages and a tight labour market, it is easy to see why businesses may be starting 2022 in a cautious mood. In the short term, business performance looks reasonably strong (especially after such a difficult couple of years) but it will not take long for challenges such as inflation to erode this performance.”
Elsewhere, two of the big four accountancy firms have issued forecasts for the North East economy that mix optimism with some caution.
KPMG said GDP in the North East is expected to grow by 4.5% this year, but said that the region’s had been constrained by the supply chain disruptions affecting the automotive sector. It added that the region had the UK’s highest unemployment rate and second-highest inactivity rate, while pay growth has been lagging the rest of the UK.
Meanwhile, EY said that the North East’s economy was among the least affected by the initial economic impact of the pandemic, but would be the slowest growing region over the nest three years, expanding by 2.3% on average each year.
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