The pain of inflation is hitting the north-east faster than other parts of the UK, according to new economic data published today.
Aberdeen & Grampian Chamber of Commerce (AGCC) research shows nearly three quarters (74%) of firms in the region plan to increase prices in the next three months.
This is soaring 12 percentage points ahead of the rest of the UK (62%) and being driven by high energy bills, increasing labour costs and fuel.
But there are also early signs the region’s economy is outperforming the rest of Britain, due largely to increasing activity in the North Sea oil and gas industry.
A buoyant oil and gas sector can decouple Aberdeen and Aberdeenshire from national economic trends, and there are early signs this could happen again.”
Ryan Crighton, policy director, Aberdeen & Grampian Chamber of Commerce.
AGCC’s figures are based on its own quarterly economic survey of 93 north-east firms, British Chambers of Commerce (BCC) research among 5,200 UK businesses and an analysis of Scottish and UK economic data.
The UK-wide survey findings reveal a significant drop in business confidence.
Among the north-east firms planning to increase the cost of goods or services, four out of five (81%) say energy bills are to blame, with three quarters (75%) blaming rising labour costs and 60% pointing to soaring fuel costs.
Inflation a growing concern for nearly 90% of north-east businesses
A majority (88%) of north-east firms cite inflation as a growing concern to their business – by far the highest level on record.
A rising proportion (34%) are also worried about interest rates.
According to AGCC policy director Ryan Crighton, businesses in the region are being resilient in the face of tough conditions.
But they cannot afford to absorb all the monetary pressures they face, he warned, adding: “These are difficult times, with significant cost increases from suppliers, energy and transport.
“This is a problem for SMEs (small and medium-sized enterprises) and lower value, low margin producers, where there is little room to absorb the enormous cost increases that firms are facing.”
Mr Crighton continued: “If you look at the factors driving the decision to increase prices, the cost of fuel is an issue for 60% of firms.
“As a region which is so geographically spread, we are perhaps more exposed than other part of the UK in this regard.
“But the biggest challenge our members are facing is around access to labour and wage inflation. The survey shows just how acute the shortage of skilled manual labour has become.
“We are in the tightest labour market in living memory and the battle for talent is fierce, pushing up wages and adding cost to already stretched firms.”
Region’s firms coping better than others
But north-east businesses are faring better than those elsewhere in the UK in terms of sales.
Across the UK, nearly a quarter (24%) of firms have seen business levels decrease over the past three months.
But in Aberdeen and Aberdeenshire it is just 11%, due largely to the upturn in North Sea activity.
Also, the number of firms in the north-east which have seen their business levels increase is sitting at 38%, running 5% higher than the rest of the UK.
Nationally, more businesses are now seeing their cashflow decreasing, instead of increasing.
Almost one in three (32%) reported reduced cashflow over the past three months, while 23% reported an increase.
The north-east is bucking this trend too, with 77% of the region’s firms reporting steady or increasing turnover.
Mr Crighton added: “It has long been said the north-east economy is a little bit different to the rest of the UK.
“Like we saw after the financial crash of 2008, a buoyant oil and gas sector can decouple Aberdeen and Aberdeenshire from national economic trends, and there are early signs this could happen again.”
Worrying trends
This research data was gathered in August and September, before the UK Government’s energy price package for businesses and the mini-Budget.
The findings paint a worrying picture of the condition of many UK firms.
Almost every key business indicator is trending downwards – sounding alarm bells across all sectors and regions.
BCC director-general Shevaun Haviland said: “Many firms are caught in the pincer movement of soaring inflation and rising interest rates.
“Businesses now desperately need to see economic stability in order to rebuild the confidence to invest.”
The six-month energy cap package for businesses is a step in the right direction, Ms Haviland said.
But she added: “We need a longer-term plan if the government is serious about helping businesses during this energy crisis. Time is of the essence.
“The government must now rapidly present more detail on its fiscal policies and supply side reforms, particularly at a time when businesses are faced with rising interest rates and high inflation.”
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