Economic survey results from the North East Chamber of Commerce show slowly improving business confidence across the region, as organisations are increasingly able to deal with continued challenges.

After a widespread drop in business confidence in the last quarter, concern indicators have reverted towards longer-term trends of steady decline.

Across all indicators, there has been an average -12.8% annual reduction in the proportion of organisations reporting higher levels of concern.

This shows more organisations feeling able to deal with the challenges they face than this time last year.

Despite improved confidence, businesses still report difficult operating conditions. Long-term challenges are dampening the ability of firms across sectors to grow, with continued staffing challenges and reduced cashflow restricting business ambition.

Recent Chamber surveys have shown improvements in confidence coinciding with reduced investment. This suggests organisations having to spend limited resources in response to short-term challenges.

Restricted growth capacity makes it more difficult for regional businesses to pursue creative, innovative solutions to longer-term challenges and be responsive to emerging opportunities.

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Business conditions are particularly challenging for the region’s internationally trading firms, with export sales and orders firmly in negative territory. Manufacturing firms, in particular, report significant drops across indicators of both international and domestic trade.

Chamber president Andrew Haigh, chief executive of Newcastle Building Society, said: “The inclusive, sustainable growth we need as a region will require investment, and lower investment indicators are one example of the continued pressures that organisations face. Continued staffing challenges also create difficult conditions for our region’s organisations.”

Fewer than half of businesses have reported operating at full capacity throughout 2023, and more organisations reported workforce contraction than workforce growth this quarter.

Despite this, there is some optimism about recruitment, with more organisations expecting their headcount to grow over the next 12 months. Results also suggest that the labour market is loosening which could mean more businesses are able to fill vacancies.

Andrew added: “There may be unforeseen challenges that will require the same resilience, innovation and creativity that has been shown consistently across the region as organisations have adjusted to the effects of Brexit, the pandemic, and the cost of living crisis.”

Alongside improving confidence, reducing price pressures for firms across sectors will also free up capacity for growth in the longer term.

Businesses’ top concerns this quarter are inflation, staff costs, and interest rates. Energy prices don’t register as a top three concern for North East businesses for the first time since 2021, having seen sustained quarterly declines throughout 2023.

Chamber chief executive John McCabe said: “Having a clear message for government, opposition parties and local politicians enables us to ensure the collective voice of our members is heard by key decision makers in the run up to critical national and local elections in 2024.”