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Birmingham Post
Birmingham Post
Business
Graeme Whitfield

Rising costs and drop in orders lead North East economy to struggle

Rising costs and a drop in orders have seen the North East cement its place as the weakest economy in the UK, according to a new business survey.

The latest data from the NatWest North East Business Activity Index highlights a loss of momentum in the region’s economy, falling from a score of 51.9 in February to 50.0 in March, the point at which the economy is staying exactly the same size and not growing.

The index, which measures the combined output of the region’s manufacturing and service sectors, has now pegged the North East as being the weakest performing region in the UK for eight months in a row. Respondents to the survey cited rising prices, increasing supply-chain disruptions and the Russian invasion of Ukraine as curbs on business activity.

Read more: go here for more North East business news

Companies in the region reported a monthly decrease in new work, with many firms linking falling orders to weaker client confidence due to the impact of the Russian invasion of Ukraine. Though the drop in new work was not huge, the North East was the only UK region to record an overall decline in new business out of the 12 regions of the UK.

The survey also found that rate of input cost inflation had accelerated for the first time since the start of the year and was the second-sharpest in the history of the survey, with costs for businesses having now increased in each of the latest 22 months. Businesses questioned included energy prices, raw materials and wages among the main cost pressures, with the North East seeing the second fastest increase in prices in the country.

Richard Topliss, chairman of NatWest’s North regional board, said: “North East businesses faced a broad stagnation in business activity as rising prices and material shortages increasingly hindered output and demand across the private sector. Moreover, new orders fell for the second time in three months as the impact of the Russian invasion of Ukraine filtered into global markets.

“The trends for both activity and new business lagged behind the national average, being in fact the weakest of the 12 monitored UK regions.

“Firms and clients recorded a further intensification of inflationary pressures in March, which led to a record increase in charges levied by private sector companies. Price pressures also dragged down business confidence to the lowest level since last December.”

There was some positive news, with private sector job numbers increasing in the North East.

And though companies in the region reported strong confidence regarding a rise in output over the course of the coming year, the overall level of positive sentiment dipped slightly to reach a three-month low in March. Predictions of new business gains following the launch of new products underpinned growth projections, but concerns regarding rising prices and the war in Ukraine dampened optimism.

The NatWest survey chimes with a similar report from the North East England Chamber of Commerce last week, in which 90% of respondents highlighted concerns about both inflation, energy prices, staff costs and interest rates. The Chamber said businesses were “doing their best to recover and grow in the face of continued difficult circumstances” but that there was “a huge and growing concern about costs”.

There are also fears that the growing cost-of-living crisis will dent public confidence and restrict spending. A new report published today by YouGov and the Centre for Economics and Business Research (Cebr) showed that public confidence in household finances had fallen significantly in the last few weeks, and was well below levels recorded at the height of the pandemic. The study found that UK households are more worried about their personal finances than they have been in more than a decade.

Kay Neufeld, at Cebr, said: “With inflation hitting 6.2% in February on the CPI (consumer prices index) measure, the cost-of-living crisis has well and truly arrived in the UK, which goes some way to explaining the dismay expressed by households looking at their financial situation. The limited measures announced by Chancellor Rishi Sunak in the spring statement have evidently failed to reassure the majority of consumers.”

All eyes will now be on next week’s unemployment figures, with the North East having this year regained its unwanted title of having the UK’s highest levels of joblessness.

So far the troubles affecting the economy have not translated into job losses, with many firms reporting staff shortages and job vacancies increasing. But that is also adding to the challenges facing businesses as they try to recover from the pandemic and look to put the economy back on an even keel after two years of disruption.

You can join the BusinessLive North East conversation on LinkedIn and Twitter

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