News and commentary

Thomas Athey, Senior Economic Analyst at the North East Local Enterprise Partnership (North East LEP), discusses the new business births and deaths data published on the North East Evidence Hub. 

The latest release of the ONS business demography data contains many positive statistics for the North East. 

The proportion of high growth businesses in the region was slightly higher than the national average for the second year in a row, showing that the North East can compete with the best in terms of rapidly scaling businesses.  

The survival rates of new business are also in line with the national average. New entrepreneurs have at least equal chances of success here as they do elsewhere. 

Most impressively though the North East continued to add to its business population in 2022. In contrast, for the first time the national data shows a contraction in the overall number of businesses. This means the North East is starting to close the gap to the national average in terms of the size of its business base. 

The fall in the number of businesses nationally has been partially driven by an increase in business deaths. In particular, the data suggests that Covid-19 and its subsequent impacts are starting to catch-up with the business population. This is also true in the North East. 

The 2020 cohort of newly created businesses has had an especially rough ride. Comparing regional businesses created in 2020 to those created in 2019, their survival rate two years later was 6% lower. For an indicator which generally does not move much over time this is a large change.  

It’s not surprising when you think of the turmoil of the pandemic, on/off social distancing restrictions, subsequent inflation, recruitment difficulties and increasing interest rates. The upshot is that business deaths increased by 8% in 2022 in the North East and 6% nationally. 

Unlike the national data however, the North East did not see a particularly large drop in business births in 2022. The total number of new businesses created fell by 7% nationally and only 3% in the North East, leaving the region on the positive side of the ledger.  

This is a testament to regional resilience in a challenging period, but the positive headlines should not leave us thinking that further catching up with England will come easily. 

Firstly, experimental rapid business births data which covers the first three quarters of 2023 suggests that the North East is unlikely to keep creating more businesses in next year’s results. The most recent release suggests 350 more businesses have closed than been created in the region since the start of the year. 

The current economic forecast supports this early indication. Interest rates have increased from 0.25% to 5.25% since the start of 2022, while most of the macro-economic predictions from institutions such as the Office for Budget responsibility and the Bank of England are not exactly optimistic in the near term.  

This is a challenging environment for businesses to operate in, and 1 in 5 businesses in the North East now report that their main concern is falling demand for goods and services. With SMEs providing a greater proportion of employment in the North East than elsewhere the region may be more exposed the falling demand than other regions. 

There is much for the region to be proud of in the latest business data, and it should give confidence to North East entrepreneurs that the region is a great place to do business. Equally, as is so often the case with the economy, there are reasons for us to be vigilant in supporting businesses to ensure that they can meet future challenges.