The North-east economy is now outperforming the UK in a number of key business metrics, according to a new report.
However, inflation – driven primarily by rising labour costs – continues to squeeze profitability among companies based in Aberdeen and Aberdeenshire more than elsewhere.
The North-east Quarterly Economic Survey, launched today by Aberdeen & Grampian Chamber of Commerce, in a new partnership with law firm Gilson Gray, benchmarks key indicators in the region’s economy against the wider UK.
The report reveals that companies here are performing better in international activities than the rest of the UK.
It also shows a higher proportion of North-east businesses feel their turnover will improve in the next 12-months (62%) compared to the UK (53%).
Four key findings will be outlined and discussed at a special Chamber Business Breakfast at the Chester Hotel in Aberdeen this morning.
They are:
(1) Strong sales underpinning growing local confidence
More than a third of companies (35%) in the North-east report that domestic sales increased in the period, in line with the UK average. And fewer local companies (15%) are reporting a decline in sales than the UK as a whole (23%).
The data shows that North-east businesses are performing far better in global markets.
Again, 35% of our regional businesses have seen an increase in international sales, outpacing the national average (27%) by eight-percentage points.
Future overseas order pipelines are also stronger in the North-east (30% vs 27%).
(2) But higher turnover not always converting to profit
A higher proportion of North-east businesses feel their turnover will improve in the next 12-months (62%) compared to the UK (53%).
But more local businesses think the price of their goods/services will have to increase over the next three months than across the UK as a whole, due to a range of pressures.
The number of regional companies concerned about interest rates has also risen sharply since Q2, from 41% to 50%, suggesting the cost of borrowing is also having an impact on bottom lines.
Inflation continues to be the biggest concern for businesses in the North-east, with 71% of those polled listing it as a concern, six percentage points higher the then UK average (65%).
This is squeezing margins with only 41% of firms in the North-east expecting profits to rise over the next 12 months, compared with 45% in the UK.
(3) Recruitment struggles drive local inflation
There is no sign of the local labour market easing in the short-term, with four out of five companies (83%) in the North-east reporting issues with recruiting suitable staff, 10 percentage points higher than the rest of the UK.
This tight labour market leads 78% of respondents to say another key factor in upward overhead pressures is funding pay awards and other rising labour costs. Other cost inflation factors (fuel, utilities, raw materials) remain but abated during the quarter.
(4) Business rates remain a challenge
The research also suggests that business rates remain a significant barrier to growth in the North-east, despite the broadly positive outcome of the recent non-domestic rates revaluation.
More than a third of firms (34%) said that business rates were a constraint to growth, far higher than the 25% average across the UK, suggesting that rates still have not fallen by enough.
Seven out of 10 properties in the Granite City have had a decrease in their rateable value since April, while there is no change for 14%, and the remaining 16% were landed with rises.
However, properties in Aberdeenshire have not fared as well as the Granite City in the latest revaluation – 48% saw rises, 36% saw decreases and there was no change for 16%.
Russell Borthwick, Chief Executive, Aberdeen & Grampian Chamber of Commerce
Reaction to the findings
Aberdeen & Grampian Chamber of Commerce said the report will provide an evidence-base to support the group’s lobbying of all three tiers of government on behalf of its members and the region.
Chief Executive Russell Borthwick said: “We are hearing the same story from many companies – turnover up, costs up, ability to increase prices in line with this limited and profitability squeezed.
“While inflation may be starting to ease, it is still having a corrosive presence in the day-to-day operation of businesses in the North-east of Scotland.
“High utility costs are also weighing on business performance, showing that while the pressure might be more tolerable, many businesses are still feeling the squeeze.
“However, the headline figures in the report, namely around turnover and sales, paints a positive picture for this region and shows that good times lie ahead if costs can be brought under control.”
The survey also found that 57% of North-east firms expect payment pressure to increase, with 30% indicating that the likelihood of payment disputes and potentially litigation will increase.
Findlay Anderson, Partner, Gilson Grap LLP
Findlay Anderson, a Partner at Gilson Gray, which now has a new North-east headquarters at Blenheim Gate in the city centre, said: “North-east businesses seem to be benefitting from concerted efforts around cash flow management in response to the ongoing and significant pressures on cash exerted by market pressures.
“The North-east also continues to benefit from its position as a global hub for exports with 35% reporting an increase in international sales.
“However, businesses are forecasting increased margin and price pressure as well as potential for payment disputes as we see debtor days increasing.
“A continued focus on robust cash management programmes alongside strong contract and supply chain rigour will be key to managing and navigating these pressures over the next year.”
Click here to view the report.