Significant rebound of business confidence in the region

New research from West & North Yorkshire Chamber of Commerce shows that confidence among businesses in West and North Yorkshire has rebounded significantly, with expectations on both turnover and profitability has significantly improved in the region.

Data in the Chamber’s latest Quarterly Economic Survey for the first quarter of 2023 shows that the amount of companies expecting to grow their profits is now at a comparable level to that seen at the start of 2022, prior to the advent of war in Ukraine.

Optimism among the manufacturing sector in particular is very strong, with the level of firms in the industry expecting to grow their profits during the coming months now higher than levels seen prior to the pandemic, having nearly doubled from the preceding quarter.

There was also positive news on employment, with both service and particularly manufacturers having taken on new staff since the start of the year. For the manufacturing sector, its employment figures are at a level not seen since the start of 2017.

There was however more negative news when it came to investment and some areas of sales, with inflation pushing these areas downwards from the previous quarter as overheads continue to soar.

While service sector firms saw a healthy 18 per cent rise in overseas sales, domestic activity was largely static or, in the case of manufacturers, down.  The research was conducting prior to last month’s rise in inflation and subsequent interest rate hike. Order books do not look terribly strong across the board but are marginally higher than seen before the Mini Budget in September. Both service and manufacturing firms will now be looking anxiously to the next three months to see if improving economic forecasts begin to translate into improving sales.

One area business is not expecting to see an improvement in is prices. Just four per cent of firms expect costs to decrease in the coming months and the best most companies are hoping for is simply for prices to remain as they are.

Elsewhere, cashflow remains a mixed bag with manufacturers having rebounded from two quarters of decline while service sector firms reporting a marginal decrease, albeit not on the same level as seen last autumn.

Amanda Beresford, Chair of West & North Yorkshire Chamber of Commerce, said: “Given the seemingly never-ending cavalcade of negative news businesses have faced in the last few months, it is very encouraging to see increasing levels of optimism in the latest Quarterly Economic Survey.

“Despite a very challenging labour market, companies have been taking on new members of staff over the last three months. Moreover, the levels of firms that are anticipating growth in terms of both revenue and profitability hints that many of our business leaders believe the worst of the storm may be over and that calmer waters lie ahead.

“However, nobody will be complacent. Following the easing of the pandemic restrictions we saw similar increases in optimism, only to see geopolitical events conspire to make life challenging.  As we saw with last month’s increase in inflation and interest rates, volatility is still with us. Energy bills are still at astronomical levels, there is still plenty to be concerned about.  Given all of these obstacles, it is clear that the appetite for investment remains constrained.

“Nevertheless, the results from both our own figures here in Yorkshire, and elsewhere in the country, indicate that the mood is increasingly turning more positive and that the worst may be behind us.”

Mark Roberts, Leeds City Region Enterprise Partnership Chair, said: “The West Yorkshire labour market continues to show signs of strength. Employment across both manufacturing and the service sector grew throughout Q1 2023, with manufacturing growth being at its highest level since Q1 2017. The growth in manufacturing employment is particularly impressive with the cost pressures that the sector is dealing with. Despite this, we also know that many firms are dealing with supply-side problems due to vacancies, so it is important that we continue to support bringing businesses and people together.

“We are all aware of the cost pressures that businesses have dealt with and continue to deal with. Whilst the Budget announced measures designed to promote investment, it is unsurprising that this survey shows investment plans are currently on hold. If business investment doesn’t increase in-line with the forecasts, it will put increasing pressure on UK borrowing and continue to exacerbate the productivity problem that plagues the West Yorkshire and UK economy.

“Going forward, the key will be to ensure that West Yorkshire businesses can be as productive and as resilient as possible, so that when the next economic crisis hits, we are in a better position to deal with it.”

Martin Hathaway, Managing Director of the Mid Yorkshire Chamber of Commerce, said: “It is fantastic to see employment on the rise in quarter one amid continued economic challenges. Recruitment has been one of the biggest obstacles facing firms in our region over the last couple of years.

“Various factors including Brexit, Covid-19, economic unrest and skills gaps have plagued Yorkshire firms, but it is incredibly pleasing to see that businesses are bucking this trend and once again looking grow their teams.

“A solid, appropriately skilled team is the key to sustainable business growth.

“Skills are high on our agenda as a Chamber, and so we are working to deliver the Local Skills Improvement Plans (LSIPs) for our region. This project will help us to ensure businesses in the area have access to appropriately trained talent and that young people can access first-class education and training here in Yorkshire.”