FIRMS in the North-East have been forced to reduce prices in the last six months, leading to a fall in profits.

According to the latest Business in Britain survey from Lloyds TSB Commercial, fierce competition has been blamed for this downwards spiral and the extent of the problem was demonstrated across the region with more firms forced to cut prices than were able to raise them. This is why profits in the North-East have continued to fall for the last two years.

"We have had a tough six months as the price rises our customers were expecting to introduce have not been possible," said Sandy Sanderson, area director for Lloyds TSB Commercial.

"However, I think firms are being more realistic now as the low inflation environment looks set to continue."

In the North-East the survey shows that for the last six months only 14 per cent of firms were able to raise prices, compared with 29 per cent which were forced to cut them.

Fourteen per cent more firms saw profits fall, rather than rise.

That was twice as many as the UK average, and three times worse than six months ago.

On the employment front, 31 per cent of firms increased staff numbers, compared with 28 per cent that cut numbers. During the next six months, 33 per cent are looking to take on new staff compared to 17 per cent looking to reduce employee numbers. The jobs are expected to be in the service sector rather than in manufacturing.

Mr Sanderson said: "The results of the research are not surprising given the high proportion of manufacturers in the region.

"But within the sector there has been both winners and losers."

He said the strength of sterling continues to penalise many manufacturers but benefits some by reducing import prices, especially in the food and manufacturing sector.