Just how robust is Yorkshire’s economy against recession?

YOU don’t have to be an economist to know that whenever there’s a boom a bust is sure to follow.

And after five years of exhilarating growth and prosperity the UK is now in severe economic slowdown.

For the majority of owner/managers business survival during such uncertain times can be reduced to three basic principles – prudent cost cutting, commercial visibility and maintaining a healthy cash flow.

But this economic slow down is different. Not only has the banking sector been brought to its knees, but rising fuel costs are creating a perfect habitat for inflation. Statements by the country’s leading mortgage lenders that property prices will fall by an average 9% this year have driven the final nail into the housing market’s coffin – a cause for real concern according to economists.

Yet, it’s only in recent weeks that the dreaded word recession has been mentioned in hushed tones up and down the country. Back in March, business organisation such as the CBI were cautious but confident. Even cost conscious consumers have kept up their high street spending.

Confidence in the region remains strong – a legacy perhaps of previous economic downturns and sector declines, which have taught firms to spread their risk and innovate. But still for many there is that niggling doubt. Am I being too optimistic? Have we missed something?

So just what does the future hold for Yorkshire? According to Tom Vosa, chief economist for Yorkshire Bank, it’s going to be tough times ahead for a region that has enjoyed record growth in recent years.

“The Government has revised its data on economic growth for Yorkshire last year from 3% to 3.7%. That means Yorkshire and Humber was the second fastest growing region in the UK next to London,” he reveals.

“Much of that growth can be attributed to Leeds becoming such a strong financial services sector and high activity in the construction sector. But both of those sectors are going to see a slow down.

“The residential property market is going to go flat, with the value of urban developments in cities such as Leeds, Manchester and to some extent Sheffield falling.

“Net mortgages are half the value than this time last year at £55bn and we’re only half way through the credit crunch. Consumer demand for property will need to increase for a recovery to happen.”

The end of government spending, which has been very strong in the region since 2001, coming to an end will also influence the region’s economic slowdown according to the economist, although regeneration projects should start to deliver dividends.

With growth predicted to reach a meagre 1% next year, businesses can take some comfort from the prediction that recovery will start in 2010. For some firms however that date may come too late.

“Firms that were performing at 3% might find themselves struggling at 1.6% growth,” warns Vosa.

“How banks manage that part of their business remains to be seen, but systems should help identify issues before they become problems.”

When asked if the banks will adopt an aggressive attitude towards struggling companies Vosa is dismissive.

“Banks learn each time from their mistakes and I don’t think there’ll be a return to 90s style banking,” he suggests.

Grim reading perhaps but there is hope for other previously struggling sectors such as manufacturing. High oil prices are helping to encourage firms to “on-shore” manufacturing rather than off shore overseas. The weakening pound is also helping increase export activity.

Rising fuel prices are also set to benefit the logistics sector, with demand for “big box” sheds increasing. According to Vosa an increasing number of UK retailers are looking to move goods by sea rather than road in an effort to save on costs, and for some such as Marks & Spencers, reduce their carbon footprint.

“Once they’ve made that move they’re hardly likely to go back to road haulage even if fuel prices fall,” he adds.

Vosa’s optimism is shared by Simon Hill, executive director for business development at Yorkshire Forward. In the past month, the regional development agency (RDA) has re-launched several generous funds – one aimed at boosting research and development (£6.9m) the other increasing export activity (£43m).

According to Hill the RDA had always planned to relaunch the funds, which run on a three year cycle, as part of its commitment to increasing productivity in the region.

“Yorkshire has one of the lowest productivity rates in the country. As an RDA we want to reverse that,” he explains.

What is different this time round is the flexible criteria that Yorkshire Forward has put on the funds in an effort to make them and other funding attractive to a wider audience.

“We want to make the funds an alternative to private sector funding, which in today’s climate may be harder to come by,” he says.

“We’re promoting them in a way we’ve never done before to let companies know they have another route to finance. That does not mean we’re competing with the private sector – that’s number one in the 10 commandments of public sector funding.”

But Hill is confident that Yorkshire will be able to hold its own in an economic downturn.

“No one can say for certain whether the current slow down is something short term or what the outcome will be,” he says.

“From our viewpoint it is difficult to say what effect there has been already on the region’s economy and what will happen in the next few years.

“However, it’s true to say that Yorkshire and Humber is well placed to meet a slowdown head on. The region has one of the lowest corporate debt ratios in the country and its business managers are still confident according to a recent survey.

“It’s important that we don’t talk ourselves into a recession but focus on reaching higher value markets much as we would have done anyway.”

There are other signs too that Yorkshire and Humber’s entrepreneurial spirit is determined not to be suppressed.

Business Link Yorkshire recorded a 25% increase in visitors to its annual enterprise shows demonstrating that the hunger for being your own boss and carving out your own destiny is still a growing passion in the region.

And it’s still very much business as usual for seasoned entrepreneurs such as Boxwood’s Simon Clothier, who has just launched Yorkshire’s newest investment fund Phase 37.

Clothier, who plans to apply a very hand on approach to his investments along with wife Liz, believes that there are seven critical stages in a company’s life cycle but that many owner/managers need help completing them particularly at critical stages.

“Every company goes through these seven steps,” he explains.

“The first being idea, the second market testing and the third taking to market. It’s here that many businesses fail to get off the ground. Our aim is to offer advice, guidance and experience to help start-ups and even more established businesses to move from three to seven, which is exit.”

Although the fund is less than two months old and only just promoted he claims he has had a steady stream of high calibre applicants. A maiden investment has already been made and there are others in the pipeline.

“There are plenty of good ideas out there and companies, which just need the skills to realise their potential,” he says.

It seems that it will be some time before there is agreement on the long-term effects of the credit crunch and fuel price crisis.

In the meantime, there is agreement that talking down a recession remains a priority. After all, no one wants to a self-fulfilling prophesy.