Investment outlook positive despite economic slump

DESPITE a drop in confidence amongst regional businesses there is still an appetite for investment according to a major national survey.

However regional development agency Yorkshire Forward has predicted that economic growth will continue to slow throughout the rest of this year, with the downturn expected to continue into 2009.

But growth is expected to pick up in 2010 as the economy begins to recover.

The latest National Business Survey – conducted by research company Ipsos MORI on behalf of England’s Regional Development Agencies – has shown a distinct downturn in business outlook with Yorkshire companies less optimistic than those in other regions.

However despite output levels being below capacity, businesses still expect to invest more on buildings, training, product and process development and plant and machinery over the next 12 months.

Industries particularly feeling the pinch and predicting deterioration in the current business climate include the construction, distribution, hotels, catering and transport, storage and communications sectors with 60% of businesses expecting a downturn in business over the next 12 months.

Yorkshire Forward research manager Patrick Bowes said: “Whilst confidence is low this needs to be weighed against a number of factors. The financial sector is buoyant and on balance output and employment forecasts are positive – there is a degree of pessimism but there are positives particularly towards attitudes towards investment.”

He added that he expected the Lumiere project in Leeds – put on hold last month – to re-start and “breathe life back into the centre of Leeds”.

The results from the survey in both Yorkshire and across England show most businesses feel optimistic that their current level of staffing will remain the same despite falling confidence and rising costs.

Around 55% of respondents in Yorkshire said the current size of their workforce would remain unchanged over the next 12 months, and the region has received several major employment boosts in Bradford, North Lincolnshire and Doncaster in the year to July 2008, the survey said.

The survey also highlights that businesses in Yorkshire will continue to invest in the next 12 months – a clear message from the regions firms that there are opportunities for growth.

Some industries in Yorkshire are more positive going forward – including manufacturing and the finance and business service sectors.

Manufacturers in particular are being boosted by export orders from emerging markets including Russia and Brazil.

Rising costs facing Yorkshire businesses will present greater challenges in the year ahead with companies expecting that the twin cost pressures of energy and raw materials will act to put further pressure on margins.

Businesses have clearly felt significant pressure on their profitability over the last 12 months, and 45% reported lower profit margins compared to just 15% who reported higher margins.

Transport and energy were confirmed to be the main upward pressure on a firms cost base with around eight in 10 citing increasing costs across these two categories over the last 12 months.

Businesses have responded to these challenges by increasing the prices they charge to customers, with 45% stating that prices charged were higher in the past year, compared to 11% stating that prices were lower.

Going forward, businesses in England and Northern Ireland expect to face a difficult trading environment over the next 12 months with slowing domestic order books and rising costs, specifically in energy and raw materials, limiting scope for further price increases and putting margins under more pressure than seen in 2007.

Simon Foy, chief economist for Yorkshire Forward, speaking on behalf of the RDA National Network, said: “The findings of this survey indicate that whilst businesses are facing difficult times in the short and medium term, in the long term they are retaining positive investment plans.”