Gilson Gray is once again delighted to co-sponsor the North East Quarterly Economic Survey, issued by Aberdeen & Grampian Chamber of Commerce. Forming part of the UK-wide British Chambers of Commerce survey, this report provides key insight into business confidence in the North East of Scotland and our role has given us a privileged opportunity to review and consider the economic data and feedback coming from organisations across the region.
Unsurprisingly, the Q4 report makes for some sobering reading as industry continues to absorb the impacts of the Labour Budget and adjust to changing economic and political landscapes ahead in 2025. Since the end of the COVID pandemic in Q1'21, we saw 13 consecutive quarters in which more than 30% of North East businesses reported increased domestic sales on a quarter-to-quarter basis. That came to an end in Q3’24 and for the last two quarters we have seen significant reductions in the number of firms reporting positively on this metric. In Q4’24, only 19% of North East respondents reported increased domestic sales in the quarter, compared to 32% UK-wide. At the same time, more than 30% of North East companies reported decreased domestic sales in the same period.
Looking forward to Q1, the picture is similar with only 27% of North East companies projecting profit growth in the next quarter – a 4 year low which compares unfavourably against the 40% of UK respondents reporting on the same datapoint. In fact, more than half of respondents in our region anticipate their profitability to decrease this quarter versus less than a third across the UK.
Many have been projecting for some time the negative impacts of successive governments’ approaches to policy and taxation for the north east oil & gas industry – and over the last 2-3 quarters we have seen a gradual decline in local business economic confidence. The Q3 Budget and the higher taxation impacts across the board have clearly accelerated the impact with 78% of local businesses now reporting taxation as a key impact on growth. The taxation burden on many north east businesses is higher than for most other UK-wide companies and these numbers are not without consequence with a massive 86% of north east businesses citing labour costs (including national insurance) as a significant challenge to prices in 2025.
All of this sounds rather bleak. However, we have also written elsewhere of the growth we are continuing to see in international and sectoral expansion and diversification for many north east businesses. Several of our clients have intentionally been making moves over the last few years to diversify into parallel sectors such as marine, nuclear, defence and renewables, whilst growing their market share in new jurisdictions around the world. Global contracting has been a regular source of instructions and Q4-Q1 is showing signs of continued growth in this area. This is reflected in the Q4 survey report where 27% of North-east firms expect overseas activity to grow in the next three months. This is an encouraging increase from the 17% level in Q3 and is significantly higher than elsewhere in the UK. Whilst this narrative applies more naturally to oil & gas and energy service companies, it certainly points to the importance for businesses across all sectors to consider avenues for diversification in order to maintain growth through this tougher economic period.
Elsewhere we are also encouraged to see increases in the number of international businesses who are looking to build presence in the UK and in the North East in particular. The energy transition is presenting opportunities across multiple energy types and we are seeing investment interest from international companies as far and wide as Eastern Europe, the US and the Middle East. The road ahead in this space will not be without challenges and our governments need to drive solutions and clarity much faster in areas such as planning, grid connections and investment incentives if we are to see the necessary momentum the transition needs.
Outside the energy space, notwithstanding the impacts of the national insurance changes in the Labour Budget on the hospitality industry, we have seen multiple clients both in the UK and internationally expressing interest in Scottish hotel acquisitions over the last few quarters. And in Q4 an analysis of Scotland’s hotel sector reported that Scotland outperformed the wider UK hotel industry in 2024. So there continues to be some positive news stories in the midst of a broader challenging landscape.
The North East has learned many times over the decades how to navigate economic storms whilst continuing to focus on finding opportunity and chasing after it. Our world-leading skills base and innovation muscle have served the region extremely well over the years. Undoubtedly this chapter is one of enormous change and challenge. But there is significant work going on across sectors to ensure our region is well placed for the opportunities that lie ahead – whether that is the Energy Transition Zone which stretches along the coastline with its multiple campuses for innovation and growth, or the work of Opportunity North East in driving entrepreneurship in areas such as digital tech, food and drink, agriculture, life sciences and tourism. The Chamber has also played a key role in shining the light not only on the plight of north east businesses, but also on the strengths, excellence and opportunities which exist in the region. These are only a few examples of the continued drive towards innovation and opportunity which defines our region. The impact of the Labour Budget will continue to be felt for many quarters to come.
However, I also believe that the prize for North East businesses continues to be significant if we can navigate the challenges well and focus on the opportunities ahead of us.