Easing cost pressures bring cautious optimism for North East businesses
Date published:
Economic survey results released today (14 January) by the North East Chamber of Commerce show a more encouraging outlook for businesses across the region, with cost pressures easing and domestic demand strengthening. However, mixed signals around workforce planning, capacity and export activity suggest that confidence remains fragile.
The latest Quarterly Economic Survey (QES) for Q4 2025 shows falling price pressures across all major inputs and declining concern levels for most business issues. At the same time, hesitancy around hiring and softer capacity utilisation continue to temper optimism.
Headline findings:
- Price pressures eased across all categories this quarter, including labour costs (-13.3%), fuel (-9.2%), utilities (-8.7%) and finance costs (-8.6%)
- Business concerns declined across most indicators, with the sharpest falls in inflation (-15.3%), staff costs (-12.9%) and energy prices (-11.9%)
- Domestic demand strengthened, with UK sales up 4.2% this quarter and 9.5% year-on-year, and UK orders rising sharply (+12.7%)
- Workforce indicators showed cautious improvement, with current workforce levels up 6.5% this quarter, though still down 7.1% year-on-year
- Recruitment activity softened further, particularly for part-time, temporary and permanent roles
- Investment intentions improved, with plant investment up 17.7% this quarter and training investment up 3.3%
Policy and business sentiment
Rhiannon Bearne, deputy chief executive at the Chamber, said: “This quarter’s results show a more encouraging picture for North East businesses. Cost pressures are easing across key areas, helping to stabilise operating conditions, while stronger UK sales, orders and improving investment intentions point to a gradual recovery in demand.
“However, confidence remains cautious. Workforce indicators are mixed, recruitment activity has softened, and export levels, while improving, still lag behind last year. Businesses need certainty on costs, regulation and investment support if this emerging stability is to be sustained.”
Business sentiment improved overall this quarter, with concern levels falling across most indicators. Inflation concerns declined by 15.3%, while staff cost and energy price concerns fell by 12.9% and 11.9% respectively, helping to support a more stable outlook.
However, not all pressures eased. Concerns increased around crime (+6.9%), congestion (+3.8%) and red tape (+1.7%). Manufacturers remained most concerned about taxation and inflation (both 68.4%), while inflation continued to be the top concern for service businesses (61.7%).
Price pressures
Cost pressures eased across all major inputs this quarter, including labour (-13.3%), fuel (-9.2%), utilities (-8.7%) and finance costs (-8.6%). Over the past 12 months, labour cost pressures have fallen by 16.3%, while utilities declined by 9.6%.
Manufacturers remain most affected by raw material prices (63.2%), while service businesses continue to be most exposed to labour cost pressures (61.7%). Labour costs also remain a concern for manufacturers (52.6%), and overheads are a key issue for service providers (54.3%).
Workforce and recruitment
Workforce indicators showed cautious improvement, with current workforce levels increasing by 6.5% this quarter, although remaining 7.1% below last year. Future workforce expectations edged down slightly (-0.2%) and are 5.5% lower year-on-year.
Recruitment activity softened further, with fewer businesses seeking part-time (-10.8%), temporary (-4.7%) and permanent staff (-4.3%). While recruitment difficulties eased overall, skilled manual and technical roles remain hardest to fill for manufacturers (31.6%) and service businesses (28.4%).
Activity, sales and investment
Business activity showed mixed trends. Businesses operating at full capacity fell slightly this quarter (-1.3%) and year-on-year (-1.8%). The share of exporting businesses rose to 28%, up 2.3% on the quarter but still 4.5% below last year.
Domestic demand strengthened, with UK sales up 4.2% this quarter and 9.5% year-on-year, and UK orders rising by 12.7%. Investment intentions also improved, with plant investment up 17.7% this quarter and 7.7% year-on-year, while training investment rose 3.3% on the quarter.
Deb Walton, Chamber president, said: “These findings reflect a growing sense of relief among businesses after a prolonged period of pressure. Falling concerns around inflation, staff costs and energy prices are easing day-to-day pressures, allowing firms to plan with greater confidence, supported by rising sales and renewed investment.
“Yet recovery remains fragile. Many businesses are still hesitant to expand their workforce, capacity constraints persist in key sectors, and export activity has not fully recovered. Targeted, practical support will be essential to turn this cautious optimism into long-term resilience for the North East economy.”
Energy usage
Energy prices remain a concern for 41% of businesses this quarter, including 31.6% of manufacturers and 43.2% of service businesses. Only 13% of firms reported taking action to reduce energy expenditure.
Among those taking action, operational changes increased, including turning off equipment (+7%) and changing work patterns (+37%). Uptake of local energy generation (+10%) and energy efficiency measures (+11%) also rose, while tariff switching fell sharply (-15%).
Outlook and advocacy
Overall, Q4 2025 points to improving conditions, with easing cost pressures and stronger domestic demand providing some relief for businesses. However, future workforce plans remain subdued (-5.5% year-on-year), capacity utilisation continues to soften and export levels remain below last year.
While confidence has improved, continued uncertainty around costs and operating conditions means many businesses remain cautious about growth and expansion in the near term. The Chamber will continue to use these findings to engage with policymakers, ensuring that the emerging stability translates into sustained investment, jobs and long-term resilience for the North East economy.
Download a copy of the Quarterly Economic Survey Q4 2025 report.