Business confidence in the North East has risen for the third consecutive quarter to the highest level in two years, outstripping the UK, according to a survey of business leaders.

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q2 2024 put confidence at 17.8 on the index, up from 13.4 in the previous quarter and ahead of both the region’s historical average and the UK reading.

Confidence was buoyed by domestic sales growth, which at 4.6% was one of the strongest rates in the UK, behind only Wales, the BCM found.

Dr James Callaghan, ICAEW Regional Director Northern, Yorkshire and Humber, said: “The Business Confidence Monitor findings for Q2 are very encouraging for the North East, revealing a third consecutive increase in optimism, putting our firms ahead of the UK average. Strong predictions for sales and profits in the year ahead will have helped, alongside the easing of input price inflation to the lowest level in the UK.

“That said, businesses in the North East are grappling with a number of growing challenges, with regulatory requirements, customer demand and staff turnover the most prevalent among our firms.

“We want to see the new Labour government work closely with the wider business community to achieve its mission of economic growth and to deliver a prosperous and productive UK economy.”

Export growth increased for a third successive quarter to 2.2%, albeit with companies in the North East reporting the weakest rise in the UK. Businesses expect exports to increase in line with the historical average in the coming year, though this would still significantly lag behind the projected UK average, a possible reflection of pessimism about growth from the manufacturing and engineering sector.

The confidence reading was also boosted by falling inflation, with annual input price inflation in the North East lower than in any other region and set to decline further in the next year.

Meanwhile, regulatory requirements were the most prevalent growing challenge facing companies in the North East, cited by four in 10 businesses. Customer demand was also reported as a growing challenge by 37% of businesses despite the improvement in domestic sales, up slightly from the previous quarter and marginally above the national average.

Staff turnover was a more widespread problem in the North East than any other region in the UK, with 31% of companies reporting the issue. The availability of non-management skills was also a greater problem in the North East than in the UK as a whole, reported by 29% of businesses in the region compared to 21% nationally.

Employment grew faster in the North East than in most other regions, outpacing the UK average, with growth of 2.3% in the year to Q2 2024. However, the rate of expansion is expected to ease over the next year to a level slightly below the national average.

Businesses in the North East reported profit growth of 2.9%, equalling the historical average for the region but marginally lower than the national average. However, a significant improvement is expected over the next year, with profits growth of 5.3% forecast. [7]

Nationally, business confidence rose to its highest level in over two years, likely driven by weaker input cost inflation feeding through into stronger profits growth and positive domestic and export sales projections, ICAEW said.