HUNDREDS of small businesses across the North-East could close this year causing significant job losses, a report has warned.

A survey reveals one in five companies in the region are considering closure after being hit by falling profits.

The report, carried out by Viking, says 14 per cent of businesses did not expect to make any profit during the first six months of 2013, with 36 per cent revealing their biggest cash outlay would be on securing new business.

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However, the North-East Federation of Small Businesses (FSB) said while the economic climate remains tough, business owners were optimistic about their futures.

Ted Salmon, FSB North-East chairman, said the region had seen some of the highest employment growth in the country in the last six months, with members reporting a rise in sales.

He said: “The situation is not as gloomy as the report makes out, but we are not Pollyanna and know there are challenges that lie ahead.

“However, our latest members' survey showed companies were a lot more optimistic with nearly half expecting sales and orders to increase.

“They might not be in a position to take on large numbers of staff but the indications are that there could be a rise in business investment.”

The report, which uses information from 1,000 small business owners and managing directors across 15 sectors in the UK, said firms in Scotland and Yorkshire and Humber were the most likely to close this year.

It said despite the difficult economic climate, 57 per cent of North-East small companies were targeting new business for 2013, and 78 per cent of firms started in the last three years were hopeful of expanding their trade, raising hopes of new jobs.

Mr Salmon said: “The labour market figures for the North-East are positive at the moment.

“The latest figures show about 52,000 people are in employment and 36,000 are off the unemployment register, which are some of the highest numbers in the country.

“Businesses are not going to start suddenly running out of their doors saying lets invest, but the picture is not as gloomy as it was this time last year.”

Sean Bailey, from Viking, said: “The report demonstrates the recent downturn in economic growth has had an effect on businesses.

"However, it is inspiring to see some owners focusing on winning new business to give themselves the best chance to stabilise and grow on a firmer footing.”