We are five quarters into the Gilson Gray co-sponsorship arrangement with Aberdeen & Grampian Chamber of Commerce for the North-east portion of the UK Quarterly Economic Survey. I’m always fascinated to see the quarterly perspective on how our markets and businesses are responding to the political and economic variables they are operating in.
Unfortunately, this quarter we see evidence of businesses reducing their growth expectations, limiting P&E investment plans and responding to rising taxation burdens as they take stock of the pronouncements from the new UK Government and they brace for the coming budget and the changes it may bring.
And beyond the quarterly perspective, I am often more interested to see the patterns which are exhibited over multiple quarters as they generally speak more powerfully to the trajectory of the market and how it is responding to market conditions and Government policies. Many of the charts in the report show how the market came out of COVID like a train with companies striving to hire and grow, driving exports and sales and investing in P&E and people, whilst still managing the vagaries of the market. We have spoken many times in the report of how our region has outperformed the rest of the UK in international orders and in business confidence. This quarter 89% of North-east businesses reported stable or increasing international order books.
However, as we look at the patterns over the last 5-6 quarters we see a gradual waning in North-east business confidence in the growth at the top end of the market. That top-line growth element reduced this quarter from 30% to 17% - an almost 50% drop as many businesses adopted a more cautious stance on the next 12 months. And whilst more than 50% of North East respondents are of the view that turnover will improve over the next year, that number has reduced every quarter over the last 6 quarters whilst those expecting turnover to decrease has almost doubled over the same period.
It is almost certainly no coincidence that this period correlates to a time where Scottish and UK governments have generally ignored the pleas of many businesses, leaders and organisations in the North-east and have applied policies and tax regimes which are anything but business-friendly. It is likely that some of this is a “foot on the ball” moment for businesses ahead of the impending budget announcements, as boards exercise caution. But the messaging is clear - Government must find the balance between taxing and incentivising industry if we are to avoid a wider slowdown.
Outside the survey we still see signs of real strength in our region. The oil and gas supply chain has diversified over the past years into other industries like renewables, nuclear and defence and has continued to look internationally for growth opportunities. The Energy Transition Zone along our coastline presents a significant opportunity for energy tech companies to grow, collaborate and benefit from investment and incentives in clean tech. And beyond energy the hospitality industry has pivoted to new post-COVID models of customer behaviours to remain strong and we have seen numerous new premises opening on our streets. Family-owned businesses, often the backbone of our industries, continue to strive to deliver and grow whilst announcements over the past year of investments in biomed, food and agriculture speak to the entrepreneurial spirit which remains strong in the region.
The North-east has proven itself to be resilient many times and has outperformed peers consistently. There is a lot to be proud of and significant energy, expertise and investment exists to ensure a strong future for our region and beyond. But surveys like the QES are a reminder that Government must listen to and partner with industry in order to ensure that the right ingredients are in place to enable growth. Our history has shown that when government achieves that, industry runs fast.