PROFITS slumped at almost half of businesses across the region over the first three months of the year, according to new research.

Insolvency trade body R3's quarterly Business Distress Index showed 49 per cent of firms in the north, which includes the North-East, Yorkshire and Humberside, had seen their profits drop between January to March, a figure that is a third higher than the national average of 36 per cent.

The Business Distress Index, which reports on hundreds of companies across the UK, also found that the percentage of the region's firms that had either seen sales volumes increase - 15 per cent - or had been able to invest in new equipment - 14 per cent - in the last quarter was well below the national averages of 25 per cent.

Steve Ross, chair of R3 in the north east and a director in the corporate recovery department of the Sunderland office of accountancy firm RSM Tenon, said: "There's no doubt that it's been a tough start to the year, especially for the likes of the retail and construction sectors, and the findings of our latest Business Distress Index resonate with the ONS data that revealed the UK's return to recession.

"History tells us that that the greatest number of businesses do not fail in the middle of a recession, but instead when the economy is recovering, and these latest findings could indicate that the expected insolvency lag we have seen in previous recessions is could be about to begin to materialise.

"However, despite the clear and present dangers that the economy faces, there are still an awful lot of businesses in the region that are expanding, taking on new staff and looking towards a bright future, and with much of the economic recovery based on the elusive notion of commercial and consumer confidence, it's important to focus on the economic positives as well as the negatives," Mr Ross added.