The number of new start-ups across the North-East fell sharply last year and established firms scaled back their growth ambitions due to Brexit uncertainty, according to new data looking at the health of the grassroots economy.

The findings have emerged from the Enterprise Research Centre’s (ERC) UK Local Growth Dashboard report, an annual publication that looks at a range of metrics charting the growth of small to medium-sized enterprises (SMEs), which account for 99 per cent of all firms in the UK.

It found that in 2018 – the most recent period available in the ONS’ Business Structure Database – the number of new start-ups across the North-East region fell by just over 1,000, representing a decline of 13.1 per cent on the previous year (from 8,280 to 7,195). Across the UK as a whole, the equivalent figure was almost 42,000, a decline of 12.9 per cent (from 325,900 to 284,000).

The pattern was uneven across North-East’s Local Enterprise Partnership (LEP) areas. The Tees Valley saw the biggest fall of 16.8 per cent (from 2,263 to 1,883), but the North East LEP area – covering Tyneside, Durham and Northumberland – only fared slightly better, with a drop of 15.1 per cent (from 4,477 to 3802).

Similar drops were seen in other parts of the UK: In Northern Ireland as a whole the figure was 15 per cent lower than in 2017. Meanwhile in England, Swindon and Wiltshire saw the biggest absolute drop – with 45 per cent fewer start-ups established. Just three areas saw an increase in start-ups – the North of Northern Ireland (+2.6 per cent), Liverpool (+2.8 per cent) and Worcestershire (+9.2 per cent).

ERC researchers said the slowdown in new firm creation reflected the uncertainty around Brexit, and warned that the ongoing lack of clarity was also blunting growth ambitions in more established firms.

Other key findings for the North-East from the UK Local Growth Dashboard report show that:

Among scale-ups, new firms in the North East LEP area were most likely to grow their turnover to £1million or more within three years between 2015-18, at 1.8 per cent. This was slightly below the UK average of two per cent, with the highest proportion in the North of Northern Ireland (4.6 per cent).

Established firms in the Tees Valley with a turnover between £1million and £2million were also the most likely to grow above the £3million mark over three years, at 7.1%. This was below the UK average of 7.4%.

Firms in the North East LEP area were the most likely to grow their productivity by increasing turnover faster than headcount, with 8.7 per cent of businesses doing so. This was slightly higher than the UK average of 8.3 per cent. Northern Ireland saw the highest proportion of firms growing productivity, followed by London, Cambridge and major city-regions in the North of England including Manchester, Leeds and Sheffield.

The ERC is the UK’s leading source of independent research insight on the growth of SMEs.

Mark Hart, ERC Deputy Director and Professor of Small Business and Entrepreneurship at Aston Business School, said: “The latest Local Growth Dashboard analysis shows some clear warning signs about the health of the private sector economy right across the UK.

"It’s particularly worrying that we’re seeing an absolute decline in the number of new businesses being started in the wake of the 2016 referendum and this is a trend we’re also observing in the data for the North East.

“Budding entrepreneurs are clearly holding their breath waiting for some clarity about the outcome of Brexit, but if the trend continues we’ll see fewer jobs created by dynamic young firms.

“And while established firms are clearly still growing successfully in many parts of the country, it’s frustrating that productivity growth still seems to elude the vast majority.

“Taken together, it seems hard to avoid the conclusion that Brexit uncertainty is causing the grassroots economy to stutter. This may not yet have fed through to employment numbers, but policymakers need to be aware of the warning signs and create the certainty businesses are craving.”