Economic survey results released today by the North East England Chamber of Commerce show that business confidence has improved, with an average 13% reduction across all indicators of concern.

More organisations are preparing for future workforce growth and expecting inflation to stabilise, although issues around recruitment and cashflow remain.

Andrew Haigh, Chamber President (Newcastle Building Society), said: “Concerns across all indicators in our first survey of 2023 have eased and forecasts suggest that the UK economy will avoid a technical recession this year.

“This provides a welcome opportunity to reflect on how resilient, resourceful, and innovative businesses in our region were throughout a year of uncertainty.

“Business confidence in the North East has begun to rise, and it is vital that as a business community we seize this as an opportunity for growth.”

The results also show businesses are continuing to invest in energy efficiency measures and equipment. However investment in plant and training plans has decreased as businesses continue to struggle with cashflow. This reflects the culmination of longer-term trends, which continue to make trading conditions challenging for organisations.

While inflation appears to be stabilising, price pressures around labour costs, utilities and fuel costs continue to be a challenge for businesses.

Among the most significant long-term challenges still faced by businesses is around their workforce, and while more organisations are preparing for workforce growth this comes from an extremely low base. Only 41% of organisations reported working at full capacity, a decline of 12% from last quarter, and fewer companies are trying to recruit across all job categories.

Andrew said: “The cumulative impact of the stresses organisations have faced recently are made clear in the longer-term trends.

“There are some suggestions that labour market pressures are beginning to ease this quarter however the data over time shows a more complex picture, with labour market difficulties having a significant impact on the number of organisations working at full capacity.

“Low cashflow was among the core challenges that businesses faced through 2022, and this remains firmly in negative territory. It is likely that this is feeding through into the declines in investment plan indicators, which suggest that businesses may be responding to challenging economic circumstances by reducing their short-term expenditure on future growth.”

Despite these continued challenges, several indicators suggest that businesses can be cautiously optimistic. While some of the most challenging conditions for businesses remain, there are signs emerging that they may have peaked.

One of the most significant challenges throughout last year was around energy costs. This remains a key issue, and this quarter 71.3% of survey respondents were concerned about energy prices. This represents a significant quarterly decrease of -16.5% from the previous quarter’s result of 88.9%, and an even larger annual decrease of -17.6% from the 89.3% recorded last year.

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Relative levels of concern around inflation and energy costs have also dropped considerably compared to both last quarter and last year, although they are still top challenges for businesses.

The interest rates, exchange rates and taxation indicators have registered the most significant declines in levels of concern across organisations since last quarter.

After diverging at the end of last year, levels of relative concern this quarter have largely coalesced between manufacturing and services firms.

Andrew added: “As businesses across the region increasingly share a similar set of concerns, now more than ever it is important for the business community to work collaboratively to address these shared challenges and harness the North East’s potential.”