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UK BUSINESS CONFIDENCE MONITOR REPORT Q2 2011 NORTHERN ENGLAND BUSINESS WITH confidence icaew.com/bcm CONFIDENCE BOUNCES BACK IN NORTHERN ENGLAND Seventy senior business professionals in Northern England were interviewed and record a Confidence Index score of 16.9 in the Q2 2011 ICAEW/Grant Thornton UK Business Confidence Monitor (BCM). The Confidence Index for the region stands at its highest level since Q2 2010. Export growth shows signs of cooling Rising input prices a threat to profits Firms in Northern England report key financial performance indicators broadly unchanged this quarter compared to last. Average turnover expanded by 2.3% over the last 12 months, while gross profits grew by 1.9%. These rates of growth are modest compared to what was typical in the region before the recession. However, reflecting more robust levels of confidence, turnover and gross profit are expected to expand more significantly over the year ahead, with 5.0% and 4.8% growth forecast respectively. Firms in Northern England report that input prices this quarter are 3.3% higher than 12 months ago. This is the highest annual rate of growth in input prices since Q4 2008. Since the second half of 2010, global commodity prices have soared. The price of Brent crude oil broke the psychologically important $100-per-barrel mark earlier this year as political unrest escalated in North Africa and the Middle East. The Bank of England has recently warned that rising utility prices will lead to further inflationary pressures over the coming months. Annual export growth fell notably this quarter – from 3.5% in Q1 2011 to 1.3% in Q2 2011, and over the next 12 months only modest growth in exports of 2.1% is expected. This is likely to be a response to ongoing concerns about the world economy in 2011, as many countries across the developed world rein in government spending to address high levels of sovereign debt, and emerging market economies tighten monetary policy to curb inflation. At the same time, businesses in the region report selling prices have risen by only 0.9% over the last 12 months. This implies a considerable squeeze on business profit margins for firms in the region and may go some way to explaining the weakening outlook for gross profit growth reported this quarter. icaew.com/bcm Fig. 1 Bcm confidence index trend in NORTHERN ENGLAND Modest GROWTH IN JOBS expected 40 30 20 10 0 -10 -20 -30 Northern England -40 UK Average -50 -60 Q2 Q3 Q4 2007 Q1 Q2 Q3 2008 Q4 Q1 Q2 2009 Q3 Q4 Q1 Q2 Q3 2010 Q4 Q1 Q2 2011 Fig. 2 Q2 2011 – NORTHERN ENGLAND Average % change in... % 8 Change 7 6 5 4 Versus last 12 months 3 2 Expected next 12 months 1 0 Turnover icaew.com/bcm Gross profits Domestic Sales Exports This quarter’s BCM provides some encouraging news for job seekers in the region. Firms report a 0.7% reduction in headcount over the last 12 months. This is the eighth quarter in nine that firms in Northern England have reported a reduction in number of employees. However, they do expect to increase headcount by 1.5% over the year ahead. Various announcements signal extra jobs being created in Northern England. Having secured £20m of private investment, TAG Energy Solutions is currently building a new factory in the region to manufacture steel components for offshore wind turbines which will create up to 400 jobs, while Hitachi is building its new rolling stock in Newton Aycliffe and later in the year the Corus Steel Plant, bought in February by Thai firm SSI, should be producing again. However, about 300 jobs are expected to be lost in the region’s steel industry with the announcement by Indian-owned steelmaker Tata that it plans to restructure operations as the construction industry continues to struggle. ICAEW Northern Region PO Box 417 Newcastle Upon Tyne NE3 9AS T +44 (0)191 300 0531 icaew.com/northern © ICAEW 2011 MKTPLM10322