It is a privilege once again for Gilson Gray LLP to be sponsors of the North-east Quarterly Economic Survey, issued by Aberdeen & Grampian Chamber of Commerce.
The report continues to provide an insightful and key perspective on the economic temperature of the North-east from quarter to quarter, and gives a useful comparison to UK business perspective on the same issues.
Last quarter we reported on encouraging signs for the regional economy as the large majority of businesses continued to report sales growth both domestically and internationally. I took the chance to note that our governments must continue to support this “powerhouse” region to be a vital part of our national economy.
One quarter on and we are having to report the opposite with recent taxation changes clearly impacting sentiment across North-east companies.
A common theme this quarter is the perceived lack of support from government with detrimental policies on the oil and gas sector impacting many businesses on a broader scale than just that one industry.
The Scottish Government’s income tax changes became understood this quarter and are also being seen to have a negative impact.
North-east businesses continue to see price increases with key factors continuing to be labour costs (76% of businesses) and utilities (62%). Both those measures and raw materials (47%) continue to outpace the general UK picture as causes for concern for North-east businesses.
Indeed, across most measures local businesses are reporting higher cost pressures than their UK peers.
Not surprisingly however, given the headlines of the past month or two, taxation is now seen as a key constraint to growth with a jump from 40% in Q3 2023 to 52% this quarter.
For the first time since 2021, taxation has displaced inflation as the main market factor most likely to impact local businesses in 2024.
In contrast, inflation remains the number one constraint for businesses in the UK as a whole. As a result of these factors, whilst 57% of local businesses believe that their turnover will increase in 2024 (almost on a par with the UK at 56%), 18% think turnover will decrease in the same period (up from 14% last quarter).
More local businesses feel that their turnover will worsen over the next 12 months than the UK as a whole. Cash flow is also a fundamental barometer of the short term health of a business. And whilst more businesses are reporting increases in recent cash flows since the last quarter (25% to 30%), we have seen a significant rise in the number of businesses reporting cash flow declines in the last quarter – from 18% to 27%.
These metrics confirm some of what we are seeing anecdotally in the market. There are more reports of businesses across multiple sectors making moves to manage cash flow with more businesses utilising overdrafts or seeing credit terms under pressure. Each quarter we have focused on the criticality of managing cash flow and debtor days and this has not changed for us this quarter.
Unsurprisingly, whilst the North-east continues to see more confidence about its export capabilities than the UK generally, the number of businesses projecting increased sales both domestically and internationally saw a reduction in the quarter both locally and across the UK.
It is clear that the Northeast economy remains resilient with less inflationary concerns than previously. However, government policies have not helped and it remains to be seen how these will affect the economy as we prepare for a critical period in both business and politics.
Click here to read the full report.