Inflation set to hit north-east faster as 74% of firms plan price increase

THE PAIN of inflation looks set to hit the North-east faster than other parts of the UK, according to new economic data published today.

Research by Aberdeen & Grampian Chamber of Commerce has revealed that almost three quarters (74%) of firms in the region plan to increase prices in the next three months.

This is soaring 12% ahead of the rest of the UK (62%), and is being driven by high energy bills, increasing labour costs and fuel.

However, there are also early indications that the economy of the North-east is outperforming the rest of the country, due largely to increasing activity in the North Sea oil and gas sector.

The Chamber network’s Quarterly Economic Survey polled 5,200 UK businesses and reveals a significant drop in confidence nationally.

Among the firms planning to increase the cost of their goods or services in Aberdeen and Aberdeenshire, 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.

Furthermore, 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.

Ryan Crighton, Policy Director at Aberdeen & Grampian Chamber of Commerce, said businesses in the region are being resilient in the face of tough conditions, but cannot afford to absorb all the monetary pressures they face.

“These are difficult times with significant cost increases from suppliers, energy and transport,” he said.

“This is a problem for SMEs and lower value, low margin producers, where there is little room to absorb the enormous cost increases that firms are facing.

“If you look at the factors driving the decision to increase prices, the cost of fuel is an issue for 60% of firms, and 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.”

Positive signs for North-east

However, businesses in the North-east are faring better than the rest of the UK in terms of sales.

Across the UK, almost a quarter of firms (24%) have seen business levels decrease over the past three months. However, that number is just 11% in Aberdeen and Aberdeenshire, due largely to the upturn in North Sea activity.

Also, the number of firms in the region which have seen 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. One in three (32%) firms reported reduced cashflow over the last three months, while 23% reported an increase.

However, again, the North-east is bucking the trend, with 77% of firms reporting steady or increasing turnover.

Mr Crighton added: “It has long been said that 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 that this could happen again.”

Firms need long-term plan from government

This survey was concluded in August and September, before the UK Government’s energy price package for businesses and the mini-budget.

However, the findings paint a worrying picture of the state of affairs at many UK firms. Almost every key business indicator is trending downwards – sounding alarm bells across all sectors and regions.

While the subsequent energy announcement will have alleviated immediate pressure on firms’ energy bills, confidence will have taken a further hit following the market reaction to the mini-budget.

Shevaun Haviland, Director General of the British Chambers of Commerce said: “Many firms are caught in the pincer movement of soaring inflation and rising interest rates. The devaluation of the pound has also added a huge cost base for businesses reliant on imports.

“Businesses now desperately need to see economic stability in order to rebuild the confidence to invest.

“The six months energy package for businesses is a step in the right direction, but 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.

“Businesses understand the economy will not fix itself overnight, but they do expect a long-term plan. We urge the Government to provide more certainty by bringing forward the publication of their Fiscal Plan.

“The sooner they do this, the sooner markets and businesses will understand what the long journey to stability will look like.”