Whilst the latest North-east Quarterly Economic Survey includes reasons for encouragement, it also paints the picture of an economy that is struggling to turn the green shoots into real recovery. A modest improvement in some indicators should not distract us from the bigger picture: costs are stubbornly high, confidence remains fragile, and too many businesses are holding back on the investment needed to secure future growth.
Domestic trading conditions remain challenging, with just 19% of regional businesses reporting increased sales in Q3, compared with 29% across the UK. While international activity has again proved more resilient, this is not yet translating into widespread confidence about the year ahead. An encouraging 38% of North-east firms expect turnover to increase over the next 12 months, but 29% anticipate a decline. On profitability, the outlook is even more concerning, with more businesses expecting profits to worsen than improve.
The message is clear: businesses are working hard to stand still, rather than investing confidently to move forward.
Cost pressures remain a major part of that story. Labour costs continue to weigh heavily on local firms while taxation is another persistent constraint, cited by 58% of regional respondents. At the same time, increasing competition is putting pressure on margins, limiting businesses’ ability to pass higher costs on to customers.
The result is a difficult balancing act between protecting profitability and maintaining competitiveness.
Perhaps most worrying is the impact on investment. Whilst capital expenditure plans have stabilised, only 14% of North-east businesses increased investment in plant, machinery and equipment during the quarter. A similar proportion increased spending on staff training.
These are not simply short-term business decisions - sustained underinvestment risks undermining productivity, skills development and the region’s long-term competitiveness.
For the North-east, these challenges are inseparable from uncertainty surrounding the future of the North Sea oil and gas industry. Businesses continue to highlight the impact of taxation, government policy and uncertainty over future activity, with concerns extending well beyond operators into the wider supply chain. The energy transition presents significant opportunities, but businesses need confidence that new investment, projects and employment will develop at a pace capable of sustaining the region’s industrial strengths and highly skilled workforce.
The recent decision to allow production consent for the Jackdaw gas field is a welcome signal that the economic value of domestic energy, energy security and the jobs supported by the North Sea supply chain remain important considerations. However, it does not resolve the wider uncertainty facing the sector. The North-east’s energy expertise and infrastructure can have a critical role to play not just for the region’s economy but for the UK as a whole. The challenge now is to build on that signal with a more consistent and predictable framework for future investment across the energy economy.
Put simply – there is an urgent need to make “growth” the practical test of policy. The Labour Government came into power on a platform which promised growth. Thus far that growth has not manifest, especially in the North-east of Scotland.
Businesses need a competitive environment in which investment is rewarded, projects can proceed with confidence, and where the transition to a lower-carbon economy creates opportunities rather than simply adding uncertainty.
The North-east does not lack ambition. However, it needs the conditions in which ambition can translate into investment, jobs and growth. Green shoots are welcome, but we need decisive action to restore business confidence, enable growth and avoid recent good news stories becoming a false dawn.