‘Encouraging start’ for firms in the North East
CONFIDENCE among North East business leaders has reached a two-year high on the back of historically high profit growth.
Research from the Institute of Chartered Accountants in England and Wales (ICAEW) points to a sentiment being at its strongest since the final quarter of 2021 and double its historic norm.
A survey of regional company leaders found profits grew by 4.7% in the 12 months to Q1 2024 – the highest rate of growth of any UK region and well above the historical norm of 2.9%.
Firms suggested that as inflationary pressures ease, they expect profits to increase by 5.9% in the year ahead. That was underpinned by anticipated 5.5% sales growth and 3.5% export sales growth in the year ahead.
Dr James Callaghan, northern regional director at the ICAEW, said: “This confidence vote is an encouraging start to the year for firms in the North East, as inflationary pressures begin to ease.
“Down the track, there should be more good news if domestic and export sales and profitability increase as forecast. While concerns surrounding regulatory requirements and an increased tax burden remain, it is encouraging to see other concerns drop in the first quarter of the year. Couple this with a positive outlook for growth and North East businesses have reason to be optimistic.
“The UK economy is less resilient than it should be, leaving it vulnerable to shocks and less agile to embracing innovation. Building an economy with resilience at its core, an end to weak productivity and making the UK the best place to run a business, must be among the next Government’s top priorities.”
The ICAEW’s findings coincide with data showing the number of North East companies filing for administration in the first quarter of the year dropped by more than a quarter. Analysis from restructuring specialist Interpath Advisory shows 37 administrations across the North East in Q1 2024, a fall compared with the same period of the year before and counter to a national increase.
The Gazette notices showed the building and construction sector continued to be the most impacted, with 11 cases in the first three months of the year, followed by industrial manufacturing with six administrations. Insolvency experts at Interpath Advisory said the overall trend was encouraging for the region but urged caution as many challenges still remained, notably for firms across the construction, logistics, brewing and recruitment industries.
James Lumb, managing director and head of the North East team at Interpath Advisory, said: “It’s encouraging to be able to talk about the North East having some relief as the number of administrations fell on a quarter-on-quarter basis compared to last year. That shouldn’t be a reason for complacency, though. We are working with businesses in a number of sectors where conditions are extremely challenging. From what we’re seeing on the ground, soft demand, uncertain pipeline and overstocking is ultimately proving to be a big issue for many businesses. This puts margins under real pressure and makes forecasting difficult, which is a problem for businesses facing higher costs, particularly interest and finance.
“Costs have hammered margins, but many management teams have also found it hard to find the revenues that will give them sufficient breathing room. A stubborn base rate and tight covenants with lenders combine to make the hard wall that they can then come up against. That distress can spread through supply chains and can impact larger businesses.
“Looking ahead, it’s likely that the administration rate will rise on an annual basis could surpass the peak we saw before Covid-19 in 2020. That point of inflexion is likely to come towards the end of this year and will represent an important marker in the re-adjustment of the UK economy.”