North-East business leaders discuss UK's economic state

So, with some experts tentatively hailing a new feel-good factor predict, Deputy Business Editor Steven Hugill asks has the North-East finally shrugged off is recessionary shackles?

TWEETING from the comfort of his London home at the start of the parliamentary recess, Chancellor George Osborne was quick to vindicate his austerity drive as the UK moved into a second successive quarter of growth.

When the Office for National Statistics revealed an estimated 0.6 per cent rise in gross domestic product (GDP), it was the first time since 2011 that the UK had seen back-to-back quarterly growth.

Added to expansion in the struggling construction and manufacturing sectors, Mr Osborne was keen to tell his 57,500 Twitter followers that the UK economy was on the mend, though he was equally sharp in attributing the caveat that a lot of work still needs to be done.

Recent figures have revealed small green shoots of recovery.

The UK construction industry has reached its highest level of activity for three years, helped by the Government's Help to Buy scheme, and a Royal Institution of Chartered Surveyors' survey shows the amount of potential buyers looking to enter the market has grown at its fastest rate since August 1999.

Last week, the North-East's resurgent iron and steelmaking industry, coupled with its record-breaking car factory, were revealed as key components in a UK export drive.

Led by SSI UK's Redcar blast furnace and Sunderland's Nissan production line, the region is on target to achieve £14.4bn of goods exports by 2017, according to the EY UK Goods Exports Monitor, with a predicted 0.8 per cent annualised growth by 2017, well ahead of the UK average of 0.3 per cent.

With Hitachi's £82m train building factory in Newton Aycliffe, County Durham, moving ever closer to creating 730 North-East jobs, the region has also been the site of other notable recent successes.

US firm Compound Photonics' purchase of a flagship Aycliffe microelectronics factory could yield about 200 jobs, Aycliffe-based Ebac's acquisition of British kitchen appliance brand, Icetech Freezers, has the potential to create 100 North-East manufacturing posts, and a £50m investment into the mothballed Ensus bioethanol plant, in Wilton, near Redcar, has raised hopes of work starting again.

However, such optimism must be tempered by the Chancellor's warning about unfinished business.

A quick look at the latest unemployment figures shows a clear North and South divide remains.

The Office of National Statistics shows the North-East is still the worst area in the UK for unemployment, while the South-East and South-West still attracts most jobs, with more than half of all private sector jobs coming in London and the South-East.

Some experts have also said the apparent housing boom is more than being propped up by London and the South-East, where rising prices have counterbalanced more stagnant increases elsewhere.

And this apparent chasm was also prevalent earlier this year, when Durham Tees Valley Airport was snubbed by the Government for a £4.65m bid to fund its expansion and 1,400 new jobs, while the Government pumps billions into infrastructure projects including road networks, Crossrail and last year's London 2012 Olympics.

We asked regional sector experts for their views on the North-East John Elliott, founded and chairman of Ebac, says people hailing the growth in GDP have very low expectations.

He said: “As a developed nation with years of manufacturing experience, we should be showing growth in GDP of more than five per cent and even more importantly we should be moving from a deficit economy to one with surpluses.

“To achieve this is remarkably easy but it needs a change in our thinking and we need to think about making the ordinary things that we consume day in and day out.

“By investing in setting up manufacturing facilities in the UK to produce many of these goods, we can keep the money in this country, create employment and reduce the deficit.

“It isn’t a question of making everything here and closing down global trade, it's a question of balance, of substituting many of the imports when domestic manufacture is possible.

“There are things we can’t make, and there are things that we can make which other countries can’t, so we do need to trade, but it is senseless to blindly keep borrowing ourselves into economic trouble.”

John Dickson, North-East chairman of the Civil Engineering Contractors' Association, believes more needs to be done to back up the new confidence.

Mr Dickson, chairman of the Owen Pugh Group, which employs 370 North-East workers, said: “That things have stopped getting worse is in itself an improvement after the longest and fastest slump in output our industry has seen since the great depression of the 1930s.

“Some signs of improvement in turnover and profit that many contractors are now seeing are largely due to us having been able to get on with work this year, not held up by endless wet weather as last year.

“But there is no sign yet of money the Government has promised for infrastructure projects hitting the ground, and the private sector is being very cautious before committing to release investment funds.

“Also, competition for such work as exists remains intense, keeping prices at rock-bottom levels while costs go on climbing.

“Therefore, I'm not convinced of a recovery, it only feels better because it has stopped getting worse and it will take some more months of improving enquiry and order levels to convince me otherwise.

“We have a long way to go before profitability gets back to a level where we can justify investing in people, plant and equipment.”

However, James Ramsbotham, chief executive of the North-East Chamber of Commerce, says the region is a dominant force in the UK.

He said: “The slight improvements we saw in the employment estimates are another demonstration that the North East is now bouncing back from the economic downturn and that it is our businesses that are leading the way.

“The last quarterly economic survey contains the best scores on sales, orders, workforce and investment since 2008.

“At different times during the past five years either manufacturing or services has been strong, but rarely both at the same time.

“Future confidence remains relatively high and expectations on profitability are the best they have been since 2008.

“Employment growth aims are at a five-year high,and the real positive is the sustained optimism from the first quarter and the genuine signs that businesses are ready to start growing.

“In 2012, we saw one very positive quarter at the start of the year, which tailed off.

"In 2013, good scores have now been maintained for two quarters.

“Uncertainties remain, not least the future of the Eurozone, which have potential to derail recovery, but it’s clear that performance is strengthening and confidence returning, which can only be very welcome news.”

Ted Salmon, North-East regional chairman of the Federation of Small Businesses, also points to a renewed confidence.

He said: “Our survey results show that North-East members are at their most confident for the past three years.

“We have seen two consecutive quarters of growing confidence but more must be done to turn this into growth.

“Getting the right incentives to help the 138,000 small and micro businesses we have in the region expand will be critical to stimulating a growing economy.

“We have seen recently the important role small businesses play in the local economy.

“For example, our research shows that for every pound spent with a small business returns an additional 63 pence of benefit returns to the local economy.

“We are also seeing more members consider trading overseas to help grow their business and this is something we’re keen to build on.

“Getting the right support at the right time for small businesses is crucial to achieve this.

“The biggest hurdles our members face to growing their businesses is accessing affordable finance and getting paid on time.

“Despite Government schemes to help improve lending to small businesses we are seeing no changes in the North-East that would suggest Funding for Lending is helping.

“We would like to see more being done to provide finance to members that are looking to grow and build on the increasing levels of confidence.

“There’s no doubt that small businesses will lead the recovery of the economy in the North-East and we will continue fighting to help achieve that.”

Paul Mankin, a partner PwC, in Newcastle, says the country is experiencing renewed optimism.

He said: “The Ashes Test at Durham, the Royal baby and the prolonged warm weather have given a much needed boost to region, with last week’s retail figures showing consumer confidence on the up with encouragingly strong sales.

“Positive statements from the Bank of England seem to have also boosted confidence with June’s 1.9 per cent surge in UK manufacturing output the strongest growth since 2010 and the most recent PMI index suggesting the service sector grew at the fastest pace since December 2006.

“While all of that serves to inject further confidence into the UK recovery, forecast growth, relative to the pre-crisis years, will remain modest for the foreseeable future, with a distinct regional split.

“More than half of all new private sector jobs have come from London and the South-East, with growth in those regions alone for 2013 forecast as 1.2 per cent and 1.4 per cent respectively.

"Comparing that to the North-East, which is expected to grow by 0.5 per cent, we are well behind that of the UK average of one per cent as well as the southern regions.

"With this discrepancy, UK average unemployment could hit the Bank’s seven per cent target while some regions are still struggling.

“However, looking to the regional deals market, although there is still some nervousness, the value gap between buyers and sellers in the mergers and acquisitions market (MA) has narrowed slightly.

“Our analysis of the North-East shows that MA remained comparable with the first six months of last year, with 93 transactions completing compared with 92 during the same period in 2012.

“If we compare the number of completed transactions with disclosed deal values between £1m and £50m, the first half of 2013 holds up well with 12 deals compared to 11 in 2012.

“Although private equity acquirers continue to favour small and mid-market transactions, the largest deal of the year so far was the £716m secondary buy out of R&R Ice Cream, in Leeming Bar, North Yorkshire, by French private equity firm, PAI Partners.

“Of the North-East plcs Utilitywise, Hargreaves, Grainger and Vertu were all active during the quarter, and we expect momentum in terms of activity to build gradually.

“This will likely be driven by a number of factors but crucially it is the combination of realistic price expectations and robust preparation which will be the key to getting deals done in the remainder of 2013 and beyond.”