Recovery is everywhere

Firms expect business to improve in every UK region during the second half of 2004, according to a twice-yearly survey by the CBI and the government’s regional development agencies.

The survey of some 4,000 firms in all business sectors shows optimism high everywhere with companies most positive in London and least positive in Scotland and Wales.

Firms in every region said they saw domestic orders increase over the past 12 months and they expect the pace of growth to increase over the coming 12 months.

But the pick up in export orders has been much more subdued despite the global economic recovery, held back by the strength of sterling against the dollar.

Firms expect the situation to improve over the coming year, with companies in the Northeast seeing a particularly strong turnaround after reporting a small decline six months ago.

Output is expected to pick up in every UK region over the next 12 months, most markedly in the Southwest, Northeast and East Midlands.

As a result, employment is expected to increase in almost all areas, led by London where firms are reporting a significant jobs surge.

Other regions expecting strong employment growth are the Yorkshire and Humber, Northeast and Southeast. The weakest jobs figures came in the West Midlands where firms now expect employment to stabilise after a small decline in the early part of this year.

Numbers of vacancies are set to decline marginally with over 70% of firms expecting openings over the next year, compared with 75% over the past year. Areas that expect the most vacancies are London, East Midlands and Yorkshire and Humber, while there are likely to be fewer vacancies in Scotland and the Southeast.

But the survey shows that business leaders are confident they have the extra capacity to cope with rising demand, with 46% of firms saying they currently operate below capacity.

Companies expect average prices to rise only modestly over the next year, suggesting inflation should remain under control.

Firms in London, the Northeast and Wales expect prices to rise the most, while firms in the West Midlands expect prices to be most subdued.

Though orders and production are up, profit margins have so far not reflected this is due to intense price competition, competition from other countries and rising costs for things like fuel, steel, pensions and national insurance.

But with business conditions improving, firms are predicting that profit margins will rise from the current low base in every region apart from Scotland, with the Northeast and East Midlands the most optimistic.

As a result, firms plan to increase investment with those most bullish in the Northwest and those less bullish in Scotland and East of England.

Douglas Godden, CBI Head of Economic Analysis, said: “This is an encouraging survey, which suggests a broad-based recovery right across the UK. As far as growth in sales and production is concerned, the only fly in the ointment is the subdued growth in export demand which is clearly holding back some regions, most notably the West Midlands. But the survey also shows the difficulty of restoring profitability, in the face of continued downward pressure on selling prices, combined with a relatively tight labour market and a variety of upward pressures on the cost of inputs.”

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