Firm optimism

A recent CBI/RDA survey of Regional Economic Trends revealed that firms are optimistic that strong growth in demand and output will continue, helping them rebuild profit margins.

Over the past 12 months demand and output have grown robustly, and businesses expect the growth to strengthen over the coming year. This has lifted optimism about the business environment and firms hope that profit margins, which have been under pressure from energy and other costs, will improve further.

Price increases were the fastest in the survey’s four year history, and a balance of 23 per cent of businesses said that prices had gone up over the past 12 months and 26 per cent expect to see this continue over the coming 12 months. The south west saw the strongest price rises at 28 per cent followed by Scotland and the east, both showing a 27 per cent rise. London and Scotland are expected to see the highest price rises over coming months at 32 per cent.

Price rises, coupled with strong demand, have helped improve profit margins, whilst a balance of eight per cent still reported a decrease in profit margins. In the coming 12 months firms expect the situation to improve further.

A balance of 17 per cent of businesses said domestic orders rose in the past year, and the figure is expected to rise to 21 per cent over the coming year. The east Midlands reported the strongest growth of 29 per cent while only the south east recorded a fall of three per cent in orders. A balance of six per cent of firms reported improved export orders which are expected to grow by a further 10 per cent.

A balance of 15 per cent of firms expects the overall business situation to improve over the next six months, which is an improvement on September. The north east and London are the most optimistic regions, while the south east and Scotland are the least.

The survey also revealed that job creation remained healthy and is predicted to continue, though at a slower rate.

The balance of employers that expanded their workforces rose to 15 per cent, though this is expected to cool slightly to 13 per cent over the coming 12 months. Job growth over the past year was highest at 23 per cent in the east and north east, and slowest in the east Midlands with only nine per cent growth.

Terry Hodgkinson, Chair of Yorkshire Forward, which represents the RDA network with the CBI, said: ‘We have seen business confidence remain weak with concerns over regulations and transport costs. However, a comparatively positive outlook over the next 12 months has replaced that which was negative only six months ago.’

The survey also revealed that 47 per cent of respondents perceived red tape and regulations as the biggest culprits for holding back growth.

Seventy per cent of firms in England and Scotland now provide on the job or off the job training, targeting management, marketing and sales as the top three skills areas for improvement.

A third of organisations surveyed said they had been taking steps to reduce their carbon emissions. The South West and West Midlands had the most companies reporting action to cut emissions.

On road pricing, a balance of 68% of firms expected overall travel and transport costs to rise if national road pricing is introduced, although firms in London, where a form of congestion charging already exists, were the least concerned of all regions about costs. Use of public transport, the amount of home working, and investment in technologies like video conferencing are all expected to increase as a result of road pricing.

Over three quarters of firms said innovation and new ideas in the last 12 months had developed their business, with 27 per cent of businesses now using a formal documented process to generate new ideas. The availability of government grants was the factor suggested by 62 per cent of firms when asked what could promote innovative ideas in business.